Please calculate the EM (Equity Multiplier) for the two banks, and explain which bank has a...
- Please calculate the EM (Equity Multiplier) for the two banks, and explain which bank has a higher level of leverage.
Bank A: $100 in debt, $ 10 in total equity
Bank B: $105 in debt, $ 5 in total equity
Homework Answers
rate positively ..
| equity multipler = Total asset/Total equity | ||||||||
| Bank A | Bank B | |||||||
| i | Debt | 100 | 105 | |||||
| ii | equity | 10 | 5 | |||||
| iii | Total asset | 110 | 110 | |||||
| iv=iii/ii | equity multiplier = | 11.00 | 22.00 | |||||
| We can see that bank B has highe equity multipler. Therefore leverage for bank B is higher . | ||||||||
| ans = Bank B |
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