A bank issued a loan with a market value of $5 million and a maturity of 5
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A bank issued a loan with a market value of $5 million and a maturity of 5 years. The loan's projected one-year income is as follows: Spread over bank's cost of funds = 0.4% Fees = 0.1% The bank has also modeled the historic default rate for borrowers of this type. The 99th percentile historic default rate is 7 percent, and the dollar proportion of loans of this type that cannot be recaptured is 60 percent. Compute the risk-adjusted return on capital? Write your answer expressed as a %, and round to two decimals.
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The risk adjusted return on capital RAROC is a measure used to evaluate the return on capital in rel...View the full answer