The following is information on current spot and forward term structures (assume the corporate debt pays interest annually) :
-The duration of a soon to be approved loan of $10 million is four years.The 99th 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.
Definitions:
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Q19: Duration considers the timing of all the
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Q84: Calculating modified duration involves<br>A)dividing the value of
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Q112: When does "duration" become a less accurate