Question

If a bank has an asset of $20 million, equity of $5 million, and profits of $2 million, its return on assets would be ______?

1) 10%
2) 20%
3) 30%
4) 40%

Answer 1

The return on assets for the bank, calculated by dividing profits of $2 million by assets of $20 million, and then multiplied by 100, is 10%.

Step-by-step explanation:

The question pertains to calculating the return on assets (ROA) for a bank. To calculate the ROA, we divide the bank's profits by its total assets and then multiply the result by 100 to express it as a percentage. In this case, the bank has profits of $2 million and assets of $20 million. Therefore, the ROA calculation would be as follows:

ROA = (Profits / Assets) × 100
ROA = ($2 million / $20 million) × 100
ROA = 0.10 × 100
ROA = 10%

Thus, the bank's return on assets would be 10%, which corresponds to option 1).