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Please use the information in the first picture to to answer both questions
hold any excess cash reserves beyond the minimum requirements. Use the following information for questions 11 and 12 A bank i
12. What should be the minimum duration in order for this loan to be approved? A. 12 years B. 9.15 years C. 11.23 years D. 10
hold any excess cash reserves beyond the minimum requirements. Use the following information for questions 11 and 12 A bank is planning to make a loan of $2,000,000. It expects to charge a loan application processing fee of 0.75%. The loan has a maturity of 12 years with duration of 9.15 years. The cost of funds (the RAROC benchmark) for the bank is 7.75%. Historically, the bank has estimated a maximum change in the risk premium for similar risk customers to be approximately 5.65%. The current market interest rate for loans to similar risk customers is 11% 11. Should the bank make this loan? Why? e the market rate of interest of 1 1% is greater than the cost of funds of 7.75%. A. Yes, becaus B. Yes, because RAROC of 7.92% is greater than the RAROC benchmark of 7.75% C. Yes, because RAROC of 8.59% is greater than the RAROC benchmark of 7.75% D. No, because the loan at risk is almost half the proposed loan amount E. None of the above
12. What should be the minimum duration in order for this loan to be approved? A. 12 years B. 9.15 years C. 11.23 years D. 10.56 years E. None of the above
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SOLUTION USI RAROC mode RAROL = fees and Inku eas n edon loan Loan or whour DLN-) puuatuo lN→ Loan amount ΔR change in pick p

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