If a bank’s assets are 180, its liabilities are 120 and its capital is 60, then its leverage ratio is Answer and its capital ratio is Answer.
Question
If a bank’s assets are 180, its liabilities are 120 and its capital is 60, then its leverage ratio is Answer and its capital ratio is Answer.
Solution
The leverage ratio is calculated by dividing the total debt (liabilities) of a company by its shareholders' equity (capital). In this case, the leverage ratio would be 120 (liabilities) divided by 60 (capital), which equals 2.
The capital ratio, on the other hand, is calculated by dividing the shareholders' equity (capital) by the total assets. In this case, the capital ratio would be 60 (capital) divided by 180 (assets), which equals 0.33 or 33%.
So, the bank's leverage ratio is 2 and its capital ratio is 0.33 or 33%.
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