What circumstances should the bank make the loan

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Reference no: EM132047060

A bank can charge a corporate borrower 5.5% on a loan. The borrower is asking for a $1 million loan. The extreme loss rate on this loan type is 3.0% and when default occurs, about 10% of the loan amount is recovered. The interest and noninterest cost of the loan is 5.0 %. What is the RAROC of the loan? Under what circumstances should the bank make the loan?

Reference no: EM132047060

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