First, calculate the components of the loan revenues:

• Spread (s): 2.5% of €1,500,000 = €37,500
• Fees (f): 1% of €1,500,000 = €15,000
• Expected loan losses (l): €20,000
• Operating costs (c): €15,000
• Tax rate (x): 30%

Now calculate the loan revenues using the formula:

Loan Revenues = (s + f − l − c) × (1 − x)
= (€37,500 + €15,000 − €20,000 − €15,000) × (1 − 0.3)
= €12,250

Things to Remember

• When calculating the numerator for RAROC, it's essential to account for all revenue components such as spreads and fees, as well as deductions like expected losses and operating costs.