The Bank Is Considering Changing Its Asset Mix by Moving

question 136

Multiple Choice

The bank is considering changing its asset mix by moving $100 million of commercial loans into Treasury securities.If it does change the asset mix and capital remains the same,the risk-based capital ratio

• A)will not change because the total assets have not changed.
• B)will decrease because the earnings rate on Treasuries is less than on loans.
• C)will increase by 16.67 percent.
• D)will increase because the assets will have less risk.

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Definitions:

Operating Income

Revenue from business operations after operating expenses and before interest and taxes.

Transfer Prices

Prices charged for the sale of goods or services between departments or subdivisions of the same company.

Variable Cost

Expenses that fluctuate in direct proportion to the production or sales volume, including the costs of raw materials and direct labor.

Outside Supplier

A company or entity that provides goods or services to another company but is not part of that company's corporate structure.