A bank can charge a corporate borrower 6.25% on a loan. The borrower is asking for a $600,000 loan. The extreme loss rate on this loan type is 4.0% and when default occurs, about 15% of the loan amount is recovered. The interest and noninterest cost of the loan is 5.85%. What is the RAROC of the loan? Under what circumstances should the bank make the loan?

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The Answer of A bank can charge a corporate borrower 6.25% on a loan. The borrower is asking for a $600,000 loan. The extreme loss rate on this loan type is 4.0% and when default occurs, about 15% of the loan amount is recovered. The interest and noninterest cost of the loan is 5.85%. What is the RAROC of the loan? Under what circumstances should the bank make the loan?

A Bank Can Charge a Corporate Borrower 6