Explanation:

RAROC = $\frac{\text{Revenues} - \text{Expected loss} - \text{Expenses} + \text{Return on capital} \pm \text{Transfer price}}{\text{Economic capital}}$

Expected loss = $0.0300 \times 2,000,000 = 60,000$

RAROC = $\frac{250,000 - 60,000 - 60,000 + 10,000 - 100,000}{400,000} = 10\%$

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Q.2734 Determine the RAROC using the following information about a loan.

Item Value
Loan Value `$2` million
Gross Revenue `$250`,000
Expected Loss 300 bps
Interest Expense `$100`,000
Operating Costs `$60`,000
Return on invested economic capital `$10`,000
Economic capital required `$400`,000

Item	Value
Loan Value	`$2` million
Gross Revenue	`$250`,000
Expected Loss	300 bps
Interest Expense	`$100`,000
Operating Costs	`$60`,000
Return on invested economic capital	`$10`,000
Economic capital required	`$400`,000

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Last updated: July 5, 2026 at 07:07

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Financial Risk Manager Part 2

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Q.2734 Determine the RAROC using the following information about a loan.

Item Value
Loan Value `$2` million
Gross Revenue `$250`,000
Expected Loss 300 bps
Interest Expense `$100`,000
Operating Costs `$60`,000
Return on invested economic capital `$10`,000
Economic capital required `$400`,000

Comments (0)

Financial Risk Manager Part 2

Get started today

Comments (0)

Get started today

Q.2734 Determine the RAROC using the following information about a loan. ItemValueLoan Value$2 millionGross Revenue$250,000Expected Loss300 bpsInterest Expense$100,000Operating Costs$60,000Return on invested economic capital$10,000Economic capital required$400,000

Comments (0)

Q.2734 Determine the RAROC using the following information about a loan.

Item Value
Loan Value `$2` million
Gross Revenue `$250`,000
Expected Loss 300 bps
Interest Expense `$100`,000
Operating Costs `$60`,000
Return on invested economic capital `$10`,000
Economic capital required `$400`,000