Question

Blue Ridge Bank has a PM of 12 percent, an interest income to total assets ratio of 6.00 percent, and a noninterest income to assets ratio of 1.50 percent. Blue Ridge also has $9 in assets per dollar in equity capital. Blue Ridge's ROE is:

Answer 1

8.10%

Step-by-step explanation:

Blue Ridge's return on equity (ROE) is how much profit does Blue Ridge's investors earn for every dollar they invested in the company.

The formula used to calculate ROE is:

ROE = PM x (total assets ratio + noninterest income) x (Assets per dollar in equity capital)

ROE = 12% x (6% + 1.5%) x $9 = 8.10%