chapter 7

A bank's ROA equals its ROE times the ratio of total assets divided by total equity capital.

• True

• False

Financial institutions that pursue the "quiet life" as a goal are really pursuing risk minimization.

• True

• False

The bank's profit margin or ratio of net after-tax income to total operating revenue is a measure of financial leverage for a bank.

• True

• False

Dividing net after-tax income by total equity capital.

Dividing net after-tax income by total equity capital.

The earnings spread for a bank is equal to:

• Total interest income divided by total earning assets less total interest-expense divided by total interest-bearing bank liabilities.

• Total interest income less total interest expenses divided by earning assets.

• Total cash and noncash expenses subtracted from interest and noninterest income divided by total assets.

• Total operating revenues less total operating expenses divided by total assets.

The so-called employee productivity ratio for a bank is equal to:

• Net operating revenue less total interest expenses per employee.

• Total interest and noninterest expense per employee

• Net operating income per full-time-equivalent employee

• Total operating earnings less salaries and wages expense per employee.

A bank's stock price will tend to rise if the:

• Value of the stream of future stockholder dividends is expected to increase

• The banking organization's perceived level of risk has fallen

• Expected dividends increase, while perceived level of risk declines

• All of the above

The so-called tax-management efficiency ratio consists of:

• Total tax liabilities over net income

• Tax-exempt assets over taxable assets

• Net income over pre-tax net operating income

• Taxes owed over total liabilities of a bank

OE for a bank reflects:

• How well the assets of the bank are managed

• The bank's use of leverage

• How well the bank controls expenses

• All of the above