1.Consider a commercial bank with assets of $2,000 million ($2billion) and liabilities of $1,700 million. The bank's after-tax earnings are $30million.
A. Calculate the returnon assets (ROA), the return on equity (ROE), the leverage ratio, and banks capital as a percent of assets.
B. Suppose the capital requirement were 8%and the bank increased its asset holdings, financed entirely by credit, toexactly meet the capital requirement. Assuming the ROA does not change, what is the new ROE and leverage ratio?