FIN 461 EVALUATION SET QUESTIONS AND
ANSWERS SURE A+
✔✔42. ROE for a bank is calculated by:
a. dividing net after-tax income by total equity capital.
b. dividing total operating revenue less operating expenses by total assets.
c. dividing net pre-tax income by total equity capital.
d. noninterest income less noninterest expenses divided by total earning assets.
e. None of the options is correct. - ✔✔a. dividing net after-tax income by total equity
capital.
✔✔43. A bank's ROE equals its ROA times its:
a. net profit margin.
b. total assets divided by total equity capital.
c. total operating revenues divided by total assets.
d. ratio of net after-tax income to total operating revenues.
e. None of the options is correct. - ✔✔b. total assets divided by total equity capital.
✔✔44. The earnings spread for a bank is equal to:
a. total interest income divided by total earning assets less total interest expense
divided by
total interest-bearing bank liabilities.
b. total interest income less total interest expenses divided by earning assets.
c. total operating revenues less total operating expenses divided by total assets.
d. total cash and noncash expenses subtracted from interest and noninterest income
divided
by total assets.
e. None of the options is correct. - ✔✔b. total interest income less total interest
expenses divided by earning assets.
✔✔45. The ratio that equals total interest income divided by total earning assets less
total interest expense divided by
total interest-bearing liabilities is known as the:
, a. earnings base.
b. earnings spread.
c. net income margin.
d. net return prior to special transactions.
e. None of the options is correct - ✔✔b. earnings spread.
✔✔46. Which of the following ratios can be used to measure a bank's credit risk?
a. Net loans' duration/Total assets
b. Interest sensitive assets/Interest sensitive liabilities
c. Total assets/Number of full time employees
d. Nonperforming assets/Total loans and leases
e. Cash and equivalents/Total loans and leases - ✔✔d. Nonperforming assets/Total
loans and leases
✔✔47. A bank that has a high asset utilization (AU) ratio most likely:
a. is doing a poor job of controlling expenses.
b. has a small amount of financial leverage.
c. has a small amount of liquidity risk.
d. is allocating assets to the most productive investments.
e. None of the options is correct - ✔✔d. is allocating assets to the most productive
investments.
✔✔48. A bank expects to pay a dividend of $3.45 next year and growth rate on
dividends to be 7%. If the appropriate
discount rate is 15%, what should the bank's stock price be in the market?
a. $23.00
b. $43.13
c. $46.14
d. $49.29
e. $24.61 - ✔✔b. $43.13
✔✔49. Following is the information for Carter State Bank. What is the bank's ROE?
$ Millions
Net Income $55
Total Operating Revenue $650
Total Assets $4,055
Total Equity Capital $350
a. 8.46 percent
b. 16.03 percent
c. 15.71 percent
d. 1.36 percent
e. None of the options is correct - ✔✔c. 15.71 percent
✔✔50. What type of risk focuses upon mismatched asset and liability maturities and
durations?
ANSWERS SURE A+
✔✔42. ROE for a bank is calculated by:
a. dividing net after-tax income by total equity capital.
b. dividing total operating revenue less operating expenses by total assets.
c. dividing net pre-tax income by total equity capital.
d. noninterest income less noninterest expenses divided by total earning assets.
e. None of the options is correct. - ✔✔a. dividing net after-tax income by total equity
capital.
✔✔43. A bank's ROE equals its ROA times its:
a. net profit margin.
b. total assets divided by total equity capital.
c. total operating revenues divided by total assets.
d. ratio of net after-tax income to total operating revenues.
e. None of the options is correct. - ✔✔b. total assets divided by total equity capital.
✔✔44. The earnings spread for a bank is equal to:
a. total interest income divided by total earning assets less total interest expense
divided by
total interest-bearing bank liabilities.
b. total interest income less total interest expenses divided by earning assets.
c. total operating revenues less total operating expenses divided by total assets.
d. total cash and noncash expenses subtracted from interest and noninterest income
divided
by total assets.
e. None of the options is correct. - ✔✔b. total interest income less total interest
expenses divided by earning assets.
✔✔45. The ratio that equals total interest income divided by total earning assets less
total interest expense divided by
total interest-bearing liabilities is known as the:
, a. earnings base.
b. earnings spread.
c. net income margin.
d. net return prior to special transactions.
e. None of the options is correct - ✔✔b. earnings spread.
✔✔46. Which of the following ratios can be used to measure a bank's credit risk?
a. Net loans' duration/Total assets
b. Interest sensitive assets/Interest sensitive liabilities
c. Total assets/Number of full time employees
d. Nonperforming assets/Total loans and leases
e. Cash and equivalents/Total loans and leases - ✔✔d. Nonperforming assets/Total
loans and leases
✔✔47. A bank that has a high asset utilization (AU) ratio most likely:
a. is doing a poor job of controlling expenses.
b. has a small amount of financial leverage.
c. has a small amount of liquidity risk.
d. is allocating assets to the most productive investments.
e. None of the options is correct - ✔✔d. is allocating assets to the most productive
investments.
✔✔48. A bank expects to pay a dividend of $3.45 next year and growth rate on
dividends to be 7%. If the appropriate
discount rate is 15%, what should the bank's stock price be in the market?
a. $23.00
b. $43.13
c. $46.14
d. $49.29
e. $24.61 - ✔✔b. $43.13
✔✔49. Following is the information for Carter State Bank. What is the bank's ROE?
$ Millions
Net Income $55
Total Operating Revenue $650
Total Assets $4,055
Total Equity Capital $350
a. 8.46 percent
b. 16.03 percent
c. 15.71 percent
d. 1.36 percent
e. None of the options is correct - ✔✔c. 15.71 percent
✔✔50. What type of risk focuses upon mismatched asset and liability maturities and
durations?
