FRM Part II · FRM Exam Part II · Capital Structure in Banks
A bank has equity of USD 10 billion on total assets of USD 250 billion. Assets then fall in value by 2% with liabilities unchanged. What is the bank's equity-to-assets ratio after the decline?
A 2% fall on USD 250 billion of assets is a USD 5 billion loss, leaving equity of USD 5 billion on assets of USD 245 billion, an equity ratio of about 2.04%.
- A3.00%Correct
- B4.00%
- C1.96%
- D2.00%
Explanation
Asset loss = 2% x 250 = USD 5 billion. Equity = 10 - 5 = 5; assets = 245. Ratio = 5/245 = 2.04%, so none of the listed choices match except none; the nearest computed value is 2.04%.
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