Bank Capital Can Best Be Described as

question 122

Multiple Choice

Bank capital can best be described as

• A) funds contributed by shareholder purchasers of a bank's stock plus the accumulated retained earnings.
• B) the accumulated amount of reserves held by a bank.
• C) the location of most of the major banks of a country.
• D) another name for bank assets.

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Definitions:

M&M Proposition II

Part of the Modigliani-Miller theorem on capital structure, stating that the cost of equity increases with higher levels of debt, as a consequence of the increased risk taken by equity holders.

Cost of Equity

The compensation that investors demand for bearing the risk of owning stock, usually reflected by earnings or dividend growth expectations.

Required Rate of Return

The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project.

M&M Proposition II

Part of the Modigliani-Miller theorem stating that a company's cost of equity increases as its level of debt increases, due to the higher risk of default.