Suppose an Investment Bank Has a Leverage Ratio of 10

question 83

Multiple Choice

Suppose an investment bank has a leverage ratio of 10 and the value of its securities decline by 10%.What happens to its return on equity investment?

• A) declines by 1%
• B) increases by 1%
• C) declines by 100%
• D) increases by 100%

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Definitions:

X-axis

The horizontal axis in a coordinate plane, often used to represent the independent variable in a graph.

Standard Deviations

A measure that quantifies the amount of variation or dispersion of a set of numerical values.

Distribution

In statistics, it refers to the way in which data or values are spread out or distributed across a range of possibilities.

Z Score

A statistical measure illustrating the relation of a value to the mean of its group by detailing it in standard deviations from the mean.