What is the difference in in the equity multiplier between bank A and bank B, each...

What is the difference in in the equity multiplier between bank A and bank B, each with ROA of 1.5%, but bank A has equity-to-asset ratio of 6%, while bank B has an equity-to asset-ratio of 10%?

	a.	8.3
	b.	10.0
	c.	2.5
	d.	6.7
	e.	none of the above

Expert Solution

Bank A
Equity to asset ratio = 6%

Equity multiplier = total asset / total equity

= Equity multiplier = 1.06/0.06
=17.67

Bank B
Equity to asset ratio = 10%

Equity multiplier = total asset / total equity

= Equity multiplier = 1.10/0.1
=11

Difference = 17.67-11

=6.7

Correct Option : d.6.7

jeff jeffy answered 3 years ago

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