(SOLVED) UNSW bank has $20 million in assets, with risk-adjusted assets of $10 million. Tier 1 capital is $500,000 and Tier II capital is $400,000.

Discipline: Finance

Type of Paper: Question-Answer

Academic Level: Undergrad. (yrs 1-2)

Paper Format: APA

Pages: 1 Words: 60

Question

UNSW bank has $20 million in assets, with risk-adjusted assets of $10 million. Tier 1 capital is $500,000 and Tier II capital is
$400,000.

If the bank issues $450,000 in common stock and uses it to issue mortgage loans (risk-weight 44%), what is the new total capital ratio?


Select one:


a. 13.24%
b. 6.75%
c. 9.00%
d. 12.92%
e. None of the options


Expert Solution Preview


Total capital ratio= Capital funds/Risk weighted assets


Given,

Current Risk weighted assets= $10 million

Amount on new loan= $450,000 and risk weight=44%

Therefore, total risk weighted assets = ....