-If Problem Loans Reduce the Market Value of the Loan

question 62

Multiple Choice

$$\begin{array} { l l l l } \text { Securities (at par) } & \$ 250 & \text { Deposits } & \$ 975 \\\text { Loans (at par) } & \$ 760 & \text { Capital } & \$ 35\end{array}$$
-If problem loans reduce the market value of the loan portfolio by 25 percent, what is the market value of capital?

• A)$35 million.
• B)-$155 million.
• C)$7 million.
• D)-$7 million.
• E)$0.

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Definitions:

Operating Income

The profit realized from a business's operations after subtracting operating expenses from gross profit.

Fixed Costs

Expenses that do not change in proportion to the level of goods or services produced within a certain range.

Break-even Sales

The amount of revenue needed to cover total costs, both fixed and variable, with no profit or loss.

Unit Selling Price

The cost for which customers can purchase an individual unit of a product.