Explanation

The risk-adjusted after-tax return on capital (RAROC) is computed by:

$RAROC = \frac{\text{After-tax expected risk-adjusted net income}}{\text{Economic capital}}$

Where:

• Economic capital = JPY 4,200,000,000 × 0.10 = JPY 420,000,000
• ER (Expected Revenue) = JPY 4,200,000,000 × 0.032 = JPY 134,400,000
• ROEC (Return on Economic Capital) = JPY 420,000,000 × 0.014 = JPY 5,880,000
• IC (Interest Cost) = JPY 4,200,000,000 × 0.004 = JPY 16,800,000
• OC (Operating Cost) = JPY 4,200,000,000 × 0.005 = JPY 21,000,000
• EL (Expected Loss) = JPY 4,200,000,000 × 0.02 = JPY 84,000,000

Tax Calculation: Pre-tax income = Revenue + ROEC - Interest - Operating Cost - Expected Loss = 134,400,000 + 5,880,000 - 16,800,000 - 21,000,000 - 84,000,000 = JPY 18,480,000

Taxes = JPY 18,480,000 × 0.38 = JPY 7,022,400

After-tax expected risk-adjusted net income = Pre-tax income - Taxes = JPY 18,480,000 - JPY 7,022,400 = JPY 11,457,600

RAROC = JPY 11,457,600 / JPY 420,000,000 = 0.02728 = 2.73%

Therefore, the correct answer is B (2.73%).