Question

If a bank’s assets are $500 million and its liabilities are $380 million, then its net worth (bank capital) is ____________________. If the bank’s assets then rise by 6 percent at the same time that its liabilities rise by 5 percent, the percentage change in the bank’s net worth will be approximately _______________ percent.

Answer 1

Step-by-step explanation:

a.)

Net worth = Assets - Liabilities

Current net worth = 500mil - 380 mil

= $120 million

b.)

If assets rise by 6%,;

Find new asset value =500 (1.06) = $530 mill.

and liabilities rise by 5%;

Find new Liabilities value = 380 (1.05) = $399 mill.

New net worth will be; $530mill - 399mill. = $131 mill.

Percentage change = [(New-Old) / Old] *100

% change = [(131 -120) / 120 ]*100

= 0.092*100

= 9.2%

Therefore, percentage change is 9.2%