What is the return on equity for a bank that has an

10. What is the return on equity for a bank that has an equity multiplier of 14, an
interest expense ratio of 4%, and a return on assets of .9%?
a. 1.3%
b. 4.0%
c. 9.0%
d. 12.6%
e. 8.6%
11. What is the equity multiplier for a bank where equity is equal to 12% of total
assets?

Use the following information for the questions 12 – 16
Cash and Due from Banks 50 $
Investments 300 $
Federal Funds 10 $
Loans 350 $
Premises 90 $
Average Total Assets 800 $
Demand Deposits 100 $
Time Deposits 300 $
Federal Funds 300 $
Equity 100 $
Average Total Liabilities & Equity 800 $
Interest Income 100 $
Interest Expense 75 $
Non-Interest Income 5 $
Non-Interest Expense 25 $
Net Income 5 $
Balance Sheet
Income Statement
1st State Bank
Assets
Liabilities & Equity
12. What is 1 st State’s return on equity?
13. What is 1 st State’s net interest margin?

14. What is the earnings base at 1
st
State?
a. 12.5%
b. 17.5%
c. 58.5%
d. 75.5%
e. 82.5%
15. What is 1
st
State’s burden?
16. What is 1 st State’s efficiency ratio?
Use the following information for questions 17 – 21

Cash and Due from Banks 75 $
Investments 400 $
Federal Funds 18 $
Loans 402 $
Premises 105 $
Average Total Assets 1,000 $
Demand Deposits 150 $
Time Deposits 325 $
Federal Funds 425 $
Equity 100 $
Average Total Liabilities & Equity 1,000 $
Interest Income 150 $
Interest Expense 110 $
Non-Interest Income 11 $
Non-Interest Expense 38 $
Net Income 13 $
Income Statement
1st National Bank
Balance Sheet
Assets
Liabilities & Equity
17. What is 1
st
State’s return on equity?
18. What is 1 st State’s net interest margin?
a. 0.6%
b. 3.8%
c. 4.9%
d. 8.2%
e. 9.8%
19. What is the earnings base at 1 st State?

20. What is 1
st
State’s burden?
21. What is 1
st
State’s efficiency ratio?
22. The goal of a bank manager should be:
a. to maximize earnings.
b. to minimize taxes.
c. to minimize risk.
d. to maximize shareholder wealth.
e. to maximize net interest income.
23. Recoveries refer to:
24. The risk that a bank cannot meet payment obligations in a timely and cost-
effective manner is known as:
25. All of the following are examples of operational risk except :

26. Which of the following is not part of the CAMELS ratings?
a. Capital adequacy.
b. Asset quality.
c. Earnings quality.
d. Liabilities quality.
e. Sensitivity to market risk.