Consider a $100 million position in 30-year investment grade corporate bonds.  Assume this position was bought at $95 million on day 1 and sold it over the next five days.  

What is the RAROC from this transaction? Assume the trader booked a gain of $805,000. Also assume that it would take a maximum of five days for a trader to exit a position of $100 million in 30-year investment grade corporate bonds? Searching historical information might reveal that the maximum five-day decline in the price of 30-year investment grade corporate bonds was 5%.

Answer rating: 100% (QA)

The RAROC RiskAdjusted Return on Capital is a measure that takes into account the risk of a transact... View the full answer