Suppose a New Customer Opens a Checking Account and a Savings

question 98

Multiple Choice

Suppose a new customer opens a checking account and a savings account in a commercial bank,placing $100,000 in each.Later,the bank loans the customer $100,000.For this bank,

• A)assets increased by $200,000 and liabilities increased by $100,000.
• B)assets increased by $100,000 because the loan is an asset and liabilities increased by $100,000 because the checking deposit is a liability.The savings deposit is neither an asset nor a liability.
• C)liabilities increased by $200,000 since the checking account and the savings account are liabilities while it generated no new assets.
• D)assets increased by $100,000 because the loan is an asset and liabilities increased by $200,000 because both the checking deposit and the savings deposit are liabilities to the bank.

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Definitions:

Residual Income

Residual Income is the amount of income that an entity generates after accounting for the cost of capital, measuring the profitability exceeding the required return on investments.

Investment Opportunity

A potential financial investment that may yield returns, including stocks, bonds, real estate, or starting a new business venture.

Return On Investment

A profitability ratio that calculates the return gained on an investment relative to the investment’s cost.

Investment Opportunity

Investment Opportunity is a term used to describe a business, project, or asset that has the potential to generate significant financial returns or profits.