Angel Bank charges an interest rate of 15% per annum on a loan, and there is no other fee charged. Its cost of obtaining the funding for this loan is 13% per annum. According to historical data, 70% of borrowers with similar characteristics defaulted when there was an adverse credit scenario, and typically the lenders were able to recover only 74% of the loan amount on average once borrowers defaulted in those adverse credit scenarios. 

What is the Risk-Adjusted-Return-on-Capital of this loan if we use historical loan loss under the adverse credit scenario as the estimate of loan risk?

Answer rating: 100% (QA)

To calculate the RiskAdjustedReturnonCapital RAROC of the loan we need to consider the loans ... View the full answer