Question

Megalopolis Bank has the following balance sheet and income statement.

Balance Sheet (in millions)
Assets					Liabilities and Equity
Cash and due from banks	$	9,400			Demand deposits	$	23,000
Investment securities		27,000			NOW accounts		93,000
Repurchase agreements		46,000			Retail CDs		32,000
Loans		94,000			Debentures		23,000
Fixed assets		19,000			Total liabilities	$	171,000
Other assets		4,400			Common stock		12,000
					Paid-in capital		4,000
					Retained earnings		12,800
Total assets	$	199,800			Total liabilities and equity	$	199,800

Income Statement
Interest on fees and loans	$	9,400
Interest on investment securities		4,400
Interest on repurchase agreements		6,400
Interest on deposits in banks		1,400
Total interest income	$	21,600
Interest on deposits	$	9,400
Interest on debentures		2,400
Total interest expense	$	11,800
Net interest income	$	9,800
Provision for loan losses		2,400
Noninterest income		2,400
Noninterest expenses		1,400
Income before taxes	$	8,400
Taxes		3,200
Net income	$	5,200

For Megalopolis, calculate (Round your answers to 2 decimal places. (e.g., 32.16))

a.Return on equity%

b.Return on assets%

c.Asset utilization%

d.Equity multiplierX

e.Profit margin%

f.Interest expense ratio%

g.Provision for loan loss ratio%

h.Noninterest expense ratio%

i.Tax ratio%

Answer 1

Answer of Part a:

Stockholders Equity = Common stock + paid in capital + Retained Earnings
Stockholders Equity = $12,000 + $4,000 + $12,800
Stockholders Equity = $28,800

Return on Equity = Net Income / Stockholders Equity
Return on Equity = $5,200 / $28,800
Return on Equity = 18.06%

Answer of Part b:

Return on Assets = Net Income / Total Assets
Return on Assets = $5,200 / $199,800
Return on Assets = 2.60%

Answer of Part c:

Assets Utilization = Total Revenue / Total Assets
Assets Utilization = ($21,600 + $2,400) / $199,800
Assets Utilization = $24,000 / $199,800
Assets Utilization = 0.1201 or 12.01%

Answer of Part d:

Stockholders Equity = Common stock + paid in capital + Retained Earnings
Stockholders Equity = $12,000 + $4,000 + $12,800
Stockholders Equity = $28,800

Equity Multiplier = Total Assets / Total Stockholder’s Equity
Equity Multiplier = $199,800 / $28,800
Equity Multiplier = 6.94

Answer of Part e:

Profit Margin = Net Income / Revenue
Profit Margin = $5,200 / ($21,600 + $2,400)
Profit Margin = $5,200/ $24,000
Profit Margin = 0.2167 or 21.67%