To raise the equity multiplier, you may opt for which of the following: a. Reduc

Question

To raise the equity multiplier, you may opt for which of the following: a. Reduce the amount of bank capital by buying back some of the bank’s stock b. Reduce the amount of bank capital by paying higher dividends to stockholders, thereby reducing the bank’s retained earnings c. Keep bank capital constant but increase the bank’s assets by acquiring new funds, say by issuing CDs and then increasing loans or purchasing more securities with these funds d. All of the above answers e. None of the above answers.

Explanation / Answer

Equity multiplier is calculated by division of equity value from total Assets. that is total Assets divided by total equity value is called equity multiplier.  equity multiplier can be increase by increase total assets, decrease value of equity that is bank capital or paying higher dividends to stockholders, so that total equity value gets reduced.

So, all the option are correct.

Option (D) is correct answer.

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