If a Bank Has a Leverage Ratio of 0

question 43

Multiple Choice

If a bank has a leverage ratio of 0.1 and a return on capital of 2%, what is its return on equity?

• A)0)2%
• B)2)1%
• C)5%
• D)20%

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Definitions:

Discount Rate

The discount rate is the interest rate used in discounted cash flow (DCF) analysis to present value future cash flows and assess the attractiveness of an investment.

Net Present Value

An approach to determining the value of an investment by discounting future cash flows to their present value.

Cash Flows

The total amount of money being transferred into and out of a business, particularly regarding calculating its operating, investing, and financing activities.

Discount Rate

Utilized in discounted cash flow analysis, this rate assists in calculating the present worth of forthcoming cash flows.