The Duration of a Soon to Be Approved Loan of $10

question 40

Multiple Choice

The duration of a soon to be approved loan of $10 million is four years.The 99^th percentile increase in risk premium for bonds belonging to the same risk category of the loan has been estimated to be 5.5 percent. What is the estimated risk-adjusted return on capital (RAROC) of this loan.

• A)6.36 percent.
• B)7.00 percent.
• C)7.13 percent.
• D)10.55 percent.
• E)25.45 percent.

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Definitions:

Environmental Racism

The practice of disproportionately situating hazardous waste sites, pollution-emitting industries, or landfills near communities of color or economically disadvantaged groups.

Disadvantaged Racial Minorities

Racial or ethnic groups that have historically faced social, economic, and political disadvantages and discrimination.

Petrochemical Plants

Industrial facilities engaged in the production of chemicals and derivatives primarily from petroleum and natural gas.

Cancer Alley

A colloquial name for an area along the Mississippi River between Baton Rouge and New Orleans, known for a high concentration of industrial plants and associated with elevated cancer rates among its population.