Describe the different types of risk, Indicate
7. (5 points) Briefly describe the different types of risk. Indicate which type of risk is most difficult to quantify and
explain why that is the case.
8. (5 points) What is the return on equity for a bank that has an equity multiplier of 12%, an interest expense ratio of
5%, and a return on assets of 10%?
9. (5 points) Explain why net interest margins have been declining (generally) for several years.
10. (10 Points) Answer each of the following questions related to the financial statements below.
a. What is the ROE?
b. What is the net interest margin?
c. What is the earnings base?
d. What is the burden ratio?
e. What is the efficiency ratio?
4th 2nd National Bank
Balance sheet
Assets
Cash and due from banks $ 125
Investments $ 310
Loans $ 408
Federal Funds $ 22
Premises $ 135
Average total assets $1,000
Liabilities and Equity
Demand deposits $ 225
Federal Funds $ 250
Time Deposits $ 425
Equity $ 100
Average Total Liabilities & Equity $1,000
Income Statement
Interest Income $ 175
Interest Expense $ 133
Non-Interest Income $ 21
Non-Interest Expense $ 49
Net Income $ 14
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Rating:
5/
Solution: Describe the different types of risk, Indicate