ABCD Bank has two assets (Credit Asset A and Credit Asset B) of $10m each. Capital adequacy is 8%….
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ABCD Bank has two assets (Credit Asset A and Credit Asset B) of $10m each. Capital adequacy is 8%. Net final return from both credit assets is estimated to be the same – $150,000/-. However, risk weighting is different – Credit Asset B requires 50% weighting while that of Credit Asset A is 100%. Calculate economic profits for both assets if the cost of capital is 10%.