Consider a bank that has the following assets and liabilities: Loans of $100...
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Accounting
Consider a bank that has the following assets and liabilities:
Loans of $100 million with a realized rate of 5%
Security holdings of $50 million earning 10% interest income
Reserves of $10 million
Savings accounts of $100 million interest of 2.5%
Checking deposits of $30 million which pay no interest
Suppose that this bank calls in $10 million of its good loans and writes off another $10 million of loans that turn out to be in default. What happens to this banks ROA and ROE?
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