A bank is considering making a loan with a duration of four years  of $10 million at a rate of 12%. The expected net income per dollar is 0.5 cents The 99th percentile increase in risk premium for similar risk bonds has been estimated to be 5.5%. The fee income on this loan is 0.4% and the spread over the cost of funds is 1%. The ROE is 10%.

a.  What is the expected net income of the loan?

b.  What is the capital (or loan loss) risk?

Answer rating: 100% (QA)

Given Information Loan Amount L Million 10 Duration D 4 Rate R 12 99percentile increase in risk pre... View the full answer