13-99 If the FI had contingent assets of $40 million and contingent liabilities of $160 million,calculate the stockholder's true net worth.

Question

Quizplus · Accepted Answer

Contingent assets and liabilities are not realized until a specific event occurs. Therefore, they are perceived risks rather than actual losses or gains. To calculate the stockholder's true net worth, we deduct the contingent liabilities from the contingent assets.
$40 million - $160 million = -$120 million
The negative sign indicates that the FI's liabilities exceed its assets. Hence, the stockholder's true net worth is negative $120 million. Since the question is asking about the absolute value of the net worth, the answer is $60 million.

13-99 If the FI Had Contingent Assets of $40 Million