What Is the Essential Idea Behind RAROC

question 29

Multiple Choice

What is the essential idea behind RAROC?

• A)Evaluating the actual or contractually promised annual ROA on a loan.
• B)Analyzing historic or past default risk experience.
• C)Balancing expected interest and fee income less the cost of funds against the loan's expected risk.
• D)Extracting expected default rates from the current term structure of interest rates.
• E)Dividing net interest and fees by the amount lent.

---

Definitions:

Office Supplies Expense

Office Supplies Expense refers to the cost associated with purchasing office supplies like paper, pens, and printers, recorded as an operational expense.

Physical Count

A method used in inventory management where the actual number of items in stock is manually counted at specific intervals.

Accrued Expenses

Financial obligations that a company has incurred but has not yet paid.

Unpaid Expenses

Expenses that have been incurred but not yet paid, typically recorded as liabilities on a balance sheet.