11-81 What Is the Essential Idea Behind RAROC

question 68

Multiple Choice

11-81 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.

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Definitions:

Autonomic Nervous System

A part of the peripheral nervous system that controls involuntary bodily functions like heartbeat and digestion.

Spinal Cord

A long, thin, tubular structure made up of nervous tissue, which extends from the brainstem down the back, and is encased in the spinal column. It is a crucial part of the central nervous system.

Somatic Nervous System

A part of the peripheral nervous system that handles voluntary control of the body's muscles and the transmission of sensory information to the central nervous system.

Curare

A plant extract used historically as a poison on arrows and darts, which acts by causing paralysis.