A bank has $200 reserves, $800 loans, $400 securities, $1200 deposits, and $100 debt.
a) Calculate the bank's capital.
b) Calculate the bank's leverage ratio.
c) Suppose there is a stock market boom, so that the bank's assets increase by 2 percent. What is the percentage change in the bank's capital? What is the change in the bank's capital in dollars?
d) Suppose that, instead of stock market boom, some borrowers default on their debt so that the bank's assets decrease by 2 percent. How much is now the bank's capital?
My answers:
a.) Capital = assets - liabilities = $1400-$1300 = $100
b.) leverage ratio= assets/debt = 1400/100 = 14
I dont understand c and d, please help super urgent
c) Ah, a stock market boom! This should be fun! To find the percentage change in the bank's capital, you need to calculate the change in capital first. The change in capital is 2% of the bank's assets, which is 2% of $1400. So, the change in capital is 0.02 * $1400 = $28.
To find the percentage change in the bank's capital, you divide the change in capital by the initial capital and multiply by 100. So, the percentage change in the bank's capital is ($28/$100) * 100 = 28%.
d) Oh no, some borrowers defaulting on their debt? That's not good news for the bank. To find the new capital after a 2% decrease in assets, you need to calculate the change in assets first. The change in assets is 2% of $1400, which is 0.02 * $1400 = $28.
To find the new capital, you subtract the change in assets from the initial capital. So, the new capital is $100 - $28 = $72.
Remember, my friend, even if the situation is super urgent, don't forget to take a moment to have a laugh and keep the stress away!
c) To calculate the percentage change in the bank's capital due to the stock market boom, we need to determine the new value of the bank's capital first. Since the assets increase by 2 percent, we can find the new value of the bank's assets as follows:
New assets = $1400 (original assets) + ($1400 * 0.02) = $1400 + $28 = $1428
The new value of the bank's capital is equal to the new assets minus liabilities:
New capital = $1428 (new assets) - $1300 (liabilities) = $128
To calculate the percentage change in capital, we divide the difference between the new capital and the original capital by the original capital and multiply by 100:
Percentage change in capital = ((New capital - Original capital) / Original capital) * 100
= (($128 - $100) / $100) * 100
= 28%
The percentage change in the bank's capital due to the stock market boom is 28%.
To find the change in the bank's capital in dollars, we subtract the original capital from the new capital:
Change in capital = New capital - Original capital
= $128 - $100
= $28
The change in the bank's capital in dollars due to the stock market boom is $28.
d) To calculate the new capital after the assets decrease by 2 percent, we first need to determine the new value of the bank's assets:
New assets = $1400 (original assets) - ($1400 * 0.02) = $1400 - $28 = $1372
The new value of the bank's capital is equal to the new assets minus liabilities:
New capital = $1372 (new assets) - $1300 (liabilities) = $72
Therefore, after the decrease in assets, the bank's capital is $72.
c) To calculate the percentage change in the bank's capital after a 2 percent increase in assets, you need to determine the new value of the bank's capital and then compare it to the original value.
1. Calculate the new value of assets after a 2 percent increase: $1400 (original assets) * 0.02 (2 percent increase) = $28.
2. Add this increase to the original value of capital: $100 (original capital) + $28 (increase) = $128.
3. Calculate the percentage change in capital: ($128 - $100) / $100 * 100 = 28 percent.
So, the percentage change in the bank's capital after the stock market boom is 28 percent.
To find the change in the bank's capital in dollars, you simply subtract the original capital value from the new capital value calculated in step 2: $128 - $100 = $28.
d) To calculate the new value of the bank's capital after a 2 percent decrease in assets, follow these steps:
1. Calculate the decrease in assets: $1400 (original assets) * 0.02 (2 percent decrease) = $28.
2. Subtract this decrease from the original value of capital: $100 (original capital) - $28 (decrease) = $72.
So, the bank's capital after some borrowers default on their debt and the assets decrease by 2 percent is $72.