Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Transcribed Image Text:) You are asked to estimate the RAROC of a
bank's $100 million loan business, 7.5% of
which is the economic capital. The average
interest rate is 8%. All the loans have the same
default probability of 1.5% with a loss given
default of 60%. Operating costs are $15
million, and the funding cost of the business is
$30 million. The economic capital is invested
and earns 6%.
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