Question: Question 7 (5 points) A bank is considering extending a $15,000,000 loan based on the following terms and conditions: Fee: 0.596 Interest Rate: 1096 Spread

Question 7 (5 points) A bank is considering extending a $15,000,000 loan based on the following terms and conditions: Fee: 0.596 Interest Rate: 1096 Spread over Cost of Funds: 2% Term: 8 years Duration: 6 years Expected Maximum Increase in Risk Premium (AR): 3.5% . What is the Capital at Risk for the loan? Tip: Calculate the RAROC denominator. RAROC One Year Net Income On Loan Loan (Asset) Risk or Capital at Risk DLN --DLN *LN * [DR/(1+R)] -$1,564,286 -$2,863,636 -$1,964,286 -$550,000

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