A Bank Has Book Value of $5 Million in Liquid

question 13

Multiple Choice

A bank has book value of $5 million in liquid assets and $95 million in nonliquid assets. Large depositors unexpectedly withdraw $9.5 million in deposits. To cover the withdrawals the bank sells all of its liquid assets at book value. To raise the additional funds needed the bank sells the necessary amount of nonliquid assets at 80 cents per dollar of book value. As a result, the bank's equity will _____________.

• A) remain unchanged
• B) fall $4.5 million
• C) fall $3.6 million
• D) fall $1.4 million
• E) fall $5.0 million (9.5M - 5M) x 80% = 3.6M

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Definitions:

Descending Colon

The part of the large intestine that descends from the splenic flexure to the sigmoid colon, involved in water and electrolyte absorption.

Hypopharynx

The lower part of the pharynx (throat) that lies just above the esophagus and larynx, important in the process of swallowing.

Tube-Like Structure

A hollow, cylindrical organ or formation in an organism that allows for the passage of substances.

Esophagus

The part of the alimentary canal that connects the throat to the stomach.