Solution-Bank return on equity being reduce to zero

Bank return on equity being reduce to zero

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Suppose that a bank has $10 billion of one-year loans and $30 billion of five year loans. These are financed by $35 billion of one-year deposits and $5 billion of five-year deposits. The bank has equity totaling $2 billion and its return on equity is currently 12%. Estimate what change in interest rate next year would lead to the bank's return on equity being reduce to zero. Assume that bank is subject to a tax rate of 30%.

Reference no: EM132444731

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Bank return on equity being reduce to zero

Reference no: EM132444731

Reference no: EM132444731

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