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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?

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saqib097

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= [tex]\frac{Tier 1 Capital+Tier 2 Capital}{Risk Weighted Assets}[/tex]

= [tex]\frac{96+48}{200(0) + 400(0.20) + 1000(0.50) + 1000}[/tex]

=[tex]\frac{144}{1580}[/tex]

= 0.0911 * 100

=9.11%.

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