Financial Risk Manager Part 2

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Explanation:

RAROC = $\frac{\text{Expected revenues} - \text{Costs} - \text{Expected losses} - \text{Taxes} + \text{Return on risk capital} \pm \text{Tr}}{\text{Economic Capital}}$

= $\frac{(12 - 2.3 - 1.6 - 0 + 0.7 \pm 0)}{80}$
= $0.11 $or `$ 11`%$

Explanation:

RAROC = $\frac{\text{Expected revenues} - \text{Costs} - \text{Expected losses} - \text{Taxes} + \text{Return on risk capital} \pm \text{Tr}}{\text{Economic Capital}}$

= $\frac{(12 - 2.3 - 1.6 - 0 + 0.7 \pm 0)}{80}$
= $0.11 $or `$ 11`%$

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Q.3206 Samar Vance is an equity strategist at Jumbo Capital. She has been given with the following information about an investee banking company whose:

Gross revenue: `$12` million

Economic capital: 80 million

Return on invested economic capital: 700,000

Operating costs associated with making the loan: `$2.3` million

Expected loss on the loan: 1,600,000

Based on the above information, the RAROC is closest to?

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Last updated: July 5, 2026 at 07:21

30%.

23%.

12%.

11%.