QUESTION 2 Morehead Bank has the following financial stateme

QUESTION 2 Morehead Bank has the following financial statements. Answer Questions 2-13 Balance Sheet Income Statement Cash Securities Investment Net Loans Net Premises and Equipment $100 600 1,200 300 Interest Income Interest Expenses Non-Interest Income Non-Interest Expenses Provision for Loan Losses $400 150 50 100 60 Total Assets 2.200 Pre Tax Net Operating Income Securities Losses Taxes Net Income 40 45 Deposits Non-Deposit Borrowings Equity Capital $1,100 800 300 Total Liabilities and Equity $2.200 What is the bank\'s ROE 0 a 18.33% Ob. 12.22% Oc. 20.45% 067.3396 QUESTION 3 What is the bank\'s ROA? 0 a. 2.5% Ob. 12.2% c. 7.4% d. 18.3%

Solution

ROE a. 18.33%

ROA a. 2.5%

Working:

Income Statement
Interest Income	400
Interest expenses	-150
Non-interest income	50
Non-interest expenses	-100
Provision for loans	-60
Pretax net operating income	140
Securities losses	-40
Losses	-45
Net Income	55
ROE = Net income / Equity
55 / 300 = 18.33%
ROA = Net income / total Assets
= 55 / 2200 = 2.50%