Suppose a Bank Is Operating with a Leverage Rate of 10

question 385

Multiple Choice

Suppose a bank is operating with a leverage rate of 10. A 6 percent increase in the value of assets

• A) will reduce liabilities by 6 percent.
• B) will result in a 60 percent increase in owner's equity.
• C) will result in a 60percent decrease in owner's equity.
• D) will reduce liabilities by 10 percent.

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Definitions:

Equity

Ownership interest in a company, representing the amount of assets that would be returned to shareholders if all debts were paid.

Balance Sheets

Financial statements that show the assets, liabilities, and equity of a company at a specific point in time, providing a snapshot of its financial position.

Transactions

Economic events that affect the financial position of a company, involving the transfer of value between two or more entities.

Stockholder

An individual or entity that owns shares in a corporation, giving them ownership interest and possibly dividends.