Answer: 2.73%

## 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%)**.

Author: LeetQuiz .