If Bank with $100 Million in Assets and $10 Million

question 114

Multiple Choice

If bank with $100 million in assets and $10 million in equity increases its assets by adding $1 to capital for every $1 added to assets:

• A) the debt-to-equity ratio will increase.
• B) the debt-to-equity ratio will remain constant.
• C) the debt-to-equity ratio will decrease.
• D) the answer cannot be determined from the information in the question.

---

Definitions:

Significant Influence

The power to participate in the financial and operating policy decisions of an investee, but not control them. This is often evidenced by owning a substantial minority of voting stock.

Book Value

Book Value is the value of an asset as it appears on the balance sheet, calculated as the cost of an asset minus any depreciation or amortization.

Significant Influence

Refers to the capacity of an investor to affect the financial and operating policies of an investee through ownership, without having complete control.

Common Stock

A type of equity ownership in a corporation, representing a claim on a portion of its profits and assets.