Question
4. Use the following information for questions a) – c) A bank currently just meets its...
4. Use the following information for questions a) – c)
A bank currently just meets its total capital requirements of 8%. The bank currently has a dividend payout ratio of 25%. Assets are expected to grow at 5%.
a) What is the required ROA to support the growth in assets?
b) If the bank expects its ROA to be 0.5%, what is the maximum dividend payout ratio to support the increase in assets?
c) If the bank expects its ROA to be 0.5% and the bank does not wish to change its dividend payout ratio from 25%, how much new equity capital (as a percent of total assets) must the bank issue to support the growth in assets?
Answers
Growth = ROA x (1 - dividend payout ratio) / Capital requirement
Part (a)
5% = ROA x (1 - 25%) / 8%
Hence, ROA = 5% x 8% / (1 - 25%) = 0.53%
Part (b)
5% = 0.5% x (1 - dividend payout ratio) / 8%
Hence, dividend payout ratio = 1 - 5% x 8% / 0.5% = 20.00%
Part (c)
Let Z be the new equity capital (as a percent of total assets) the bank must issue to support the growth in assets
Growth = [ROA x (1 - dividend payout ratio) + Z] / Capital requirement
5% = [0.5% x (1 - 25%) + Z] / 8%
Hence, capital requirement = Z = 5% x 8% - 0.5% x (1 - 25%) = 0.0250%
Similar Solved Questions
1 answers
What is the vertex form of #y=7x^2 + 9x - 1#?
What is the vertex form of #y=7x^2 + 9x - 1#?...
1 answers
Bacteria growth is controlled by both sterilization and sanitization. Below list 3 physical sterilization methods, 3...
Bacteria growth is controlled by both sterilization and sanitization. Below list 3 physical sterilization methods, 3 chemical sterilization methods, and 3 chemical sanitization methods. Include the mechanism used by sanitization chemicals to control bacterial growth....
1 answers
Use the substitution method to show that T(n) = T(n − 1) + n has a...
Use the substitution method to show that T(n) = T(n − 1) + n has a closed-form solution of O(n^2 )....
1 answers
Consider the following function. F(t) = 315 – 2012 + 16 Find the derivative of the...
Consider the following function. F(t) = 315 – 2012 + 16 Find the derivative of the function. F"(t) = Find the critical numbers of the function. (Enter your answers as a comma-separated list.) t = Find the relative maxima and relative minima, if any, of the function. (If an answer does not ...
1 answers
What resolution is needed to separate ions with m/z values of 653.124 and 653.211? Note: Use...
What resolution is needed to separate ions with m/z values of 653.124 and 653.211? Note: Use the mean m/z value for this calculation. LOOKING FOR A NUMBER!! I know its a high resolution but give a specific answer!...
1 answers
Based on the image, is the image real/virtual, inverted/upright, and what is the magnification? Object F...
Based on the image, is the image real/virtual, inverted/upright, and what is the magnification? Object F F Plane mirror Convex lens...
1 answers
Givens, Hong, and Partners obtained a $7600 term loan at 9.1% compounded annually for new boardroom...
Givens, Hong, and Partners obtained a $7600 term loan at 9.1% compounded annually for new boardroom furniture. Prepare a complete amortization schedule in which the loan is repaid by equal semiannual payments over three years. (Round your answers to the nearest cent. Do not round the intermediate ca...
2 answers
I am having trouble coming up with a thesis statement for an essay
I am having trouble coming up with a thesis statement for an essay. I need to compare and contrast how I view nature to the way Tenyson and Wordsworth view it. I have to focus on what these observations say about my culture, society,a dn religion.My idea:Three contributing factors to a poet's wr...
1 answers
Question 21 of 44 (point) Attempt 1 of 1 View question in a popup 3h 40m...
Question 21 of 44 (point) Attempt 1 of 1 View question in a popup 3h 40m Reaning 52 Section Exercise 23 - Determine the probability P (Fewer than 3) for a binomial experiment with n-13 trials and the success probability p=0.4. Then find the mean, variance, and standard deviation dll Part 1 of 3 Dete...
1 answers
A 425-pF capacitor is charged to 135V and then quickly connected to a 175-mH inductor. Determine...
A 425-pF capacitor is charged to 135V and then quickly connected to a 175-mH inductor. Determine (a) the frequency of oscillation, (b) the peak value of the current, and (c) the maximum energy stored in the magnetic field of the inductor....
1 answers
How do you solve #3( x - 1) + \frac { 3} { 5} = 3#?
How do you solve #3( x - 1) + \frac { 3} { 5} = 3#?...
1 answers
Question 1, thank you!! A boy holds a converging lens 5 cm away from a bug...
Question 1, thank you!! A boy holds a converging lens 5 cm away from a bug crawling on the floor to see it more clearly for his science project. The magnitude of the focal length of this converging lens is 10 cm. What is the magnitude of the magnification of the bug? Select one: 0.5 -2 -0.5 2...
1 answers
The book value of natural resources is: Select one: a. Increased over time b. Depleted over...
The book value of natural resources is: Select one: a. Increased over time b. Depleted over time c. Amortized over time d. Wasted over time...
1 answers
Complete the transformations Br From - To: E = Me CHCI le From ray To: HEH...
Complete the transformations Br From - To: E = Me CHCI le From ray To: HEH CH2 CH3 CH3CI СНСІ;...
1 answers
Chp 26 you have checked the medications Record (MAR) for MARgAnet MARKs meet the patients, in Volume 12 and prepAREP...
Chp 26 you have checked the medications Record (MAR) for MARgAnet MARKs meet the patients, in Volume 12 and prepAREP her next dose of antibiotic for Ivindministration, The MAR also indicates that she is Recieving Morphine for pain and that her Last dose was given IHR Ago when you enter the Room, you...