Question

Bank A has a Return on Equity (ROE) of 18.00% and a Return on Assets (ROA) of 2.00%. Bank B has a Return on Equity (ROE) of 19.80% and a Return on Assets (ROA) of 1.60%. Using this information, which is of the following is NOT possible?

Group of answer choices

Bank B has an equity multiplier of 12.38

Bank B has a profit margin of 24.00% and an Asset Utilisation Ratio of 5.60%

Bank B has a profit margin of 30.00% and an Asset Utilisation Ratio of 5.33%

Bank A has a profit margin of 28.00% and an Asset Utilisation Ratio of 7.14%

Bank A has an equity multiplier of 9.00

Which of the following is NOT a primary function performed by financial intermediaries?

a Group of answer choices

b Maturity intermediation services

c Information production

d Management of the nation's money supply

e Asset transformation services

f Brokerage services

Consider a bond with a face value of $ 2000 to be repaid at maturity. The coupon rate is 3.50% p.a and coupon payments are made semi-annually. The maturity of the bond is 1.5 years and the current market rate is 4.50% p.a. What is the bond’s duration (round your answers to three decimals)?

Group of answer choices

1.475 years

1.500 years

1.518 years

None of the given answers

1.496 years

Answer 1

1.
Equity Multiplier=Assets/Equity=RoE/RoA
Bank A=18%/2%=9
Bank B=19.80%/1.60%=12.375000

RoA=Profit Margin*Asset Utilisation Ratio
From Option B) Bank B RoA=24%*5.60%=1.34%
From Option C) Bank B RoA=30%*5.33%=1.60%
From Option D) Bank A RoA=28%*7.14%=2.00%

Hence Option B is not possible

2.
Management of the nation's money supply

3.
=(0.5*2000*3.5%/2*1/1.0225^1+1*2000*3.5%/2*1/1.0225^2+1.5*(2000+2000*3.5%/2)*1/1.0225^3)/(2000*3.5%/2*1/1.0225^1+2000*3.5%/2*1/1.0225^2+(2000+2000*3.5%/2)*1/1.0225^3)
=1.475