## 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

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