What is the return on equity for a bank that has an equity multiplier of 10,...

What is the return on equity for a bank that has an equity multiplier of 10, an interest expense ratio of 5%, and a return on assets of 2%? 1) 15.4% 2) 9.1% 3) 11.8% 4) 20.0% 5) 7.0%

Expert Solution

Return on Equity (ROE)

As per the DuPont Model , the Return on Equity is calculated by uing the following formula

Return on Equity = Return on assets x Equity Multiplier

Return on Equity = 2.00% x 10 Times

Return on Equity = 20.00%

Therefore, the Return on Equity (ROE) will be (4). 20%

jeff jeffy answered 2 years ago

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What is the return on equity for a bank that has an equity multiplier of 10,...

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