   Chapter 12, Problem 3WNG

Chapter
Section
Textbook Problem

A bank’s assets are $90 million, and its liabilities are$71 million. Its assets increase by 10 percent, and its liabilities increase by 6 percent. What is the percentage change in the bank’s capital, or net worth?

To determine

Identify the percentage change in bank's capital.

Explanation

The bank’s capital can be calculated by using the following formula:

Capital =AssetsLaibilities        (1)

Since, the assets are $90 million and the liabilities are$71 million, the initial bank capital can be calculated by using the Eqution-1 as follows:

Capital =$90million$71million=$19million Thus, the initial capital of the bank is$19 million.

After the changes, the new assets are $99 million [($90×10%/100)+$90] and the liabilities are$75

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