What Is the Leverage Implied by the Bank Balance Sheet

question 11

Multiple Choice

What is the leverage implied by the bank balance sheet listed below?

• A)2-to-1
• B)7-to-1
• C)8-to-1
• D)10-to-1

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Definitions:

Default Risk

The possibility that a borrower will fail to pay back a loan according to the agreed terms.

Debt Financing

The process of raising capital through the sale of bonds or obtaining a loan, where the borrowed amount is expected to be repaid with interest.

Tax-Deductible

Expenses that can be subtracted from gross income to reduce the amount of income that is subject to tax.

Operating Cash Flows

Operating cash flows refer to the cash generated from a company's regular business operations, reflecting its ability to generate sufficient cash to maintain operations.