Part II. Calculations (30 points; 2 points for each sub-question) Please fill in

Question

Part II. Calculations (30 points; 2 points for each sub-question) Please fill in the blank, and show your workout (calculation or explanation). The workout is for partial credit when your answer is wrong. 1. (6 points) A bank can charge a corporate borrower 625% on a loan. The interest and no interest cost of the loan is 5.85%. The borrower is asking for a $600,000 loan. The extreme default rate on this type of loan is 4.0%; and when default occurs, about 85% of the loan amount is lost. 2. 193. 75 The net income on the loan in a year is Hint: (0.0625-0.0585) * S600,000 Workout: yo The loan risk (or value at risk) is 2 Workout: x257-ky % 400 ,000 The RAROC is 1075 Workout: 2193,75/ 2, 1oo

Explanation / Answer

1) Net Income on Loan=(0.0625-0.0585)*600000$
=2400$
2)The Loan Risk=$600000*85%*4%
=20400$
The RAROC =2400/20400

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