A bank has a base loan rate of 4.75 percent and for the loan under consideration it would apply a 2 percent risk premium. The bank also requires compensating balances (noninterest-bearing)equal to 5 percent of the loan amount. The bank's reserve requirements are 10 percent. The bank charges 1 percent of the loan amount as an origination fee. The borrower is asking for a $500,000 loan. Calculate the ROA on the loan.
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