Question

A bank has $200 million in assets in the 0 percent risk-weight category. It has $400 million in assets in the 20 percent risk-weight category. It has $1,000 million in assets in the 50 percent risk-weight category and has $1,000 million in assets in the 100 percent risk-weight category. This bank has $96 million in Tier 1 capital and $48 million in Tier 2 capital. What is this bank's ratio of total capital to risk assets?

Answer 1

Answer:

The bank's ratio of total capital to risk assets is 9.11%.

Explanation:

The capital adequacy ratio is calculated by dividing a bank's capital by its risk-weighted assets. The capital used to calculate the capital adequacy ratio is divided into two tiers.

CAR= $\frac{Tier 1 Capital+Tier 2 Capital}{Risk Weighted Assets}$

= $\frac{96+48}{200(0) + 400(0.20) + 1000(0.50) + 1000}$

=$\frac{144}{1580}$

= 0.0911 * 100

=9.11%.