A Bank's Assets Are $400 Million and Its Liabilities Are

question 74

Multiple Choice

A bank's assets are $400 million and its liabilities are $300 million,which means that the bank's net worth (bank capital) is ____________________.If the bank's assets rise by 8% at the same time that its liabilities rise by 5%,the bank's new net worth will then be _______________.

• A) $700 million; $713 million
• B) $100 million; $117 million
• C) $100 million; $102 million
• D) $350 million; $360.5 million

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Definitions:

Price Appreciation

An increase in the market value of an asset over time, often influenced by factors such as demand, inflation, and market conditions.

Risky Securities

Financial instruments that carry a high degree of investment risk due to the potential for significant fluctuations in value.

Riskless Securities

Financial instruments that are considered to have minimal risk of loss, typically issued by governments.

Risk Premium

The additional return expected by an investor for holding a riskier asset compared to a risk-free asset.