11-111 If the Minimum RAROC Acceptable to the Bank Is

question 20

Multiple Choice

11-111 If the minimum RAROC acceptable to the bank is 8 percent,what should be its expected percentage fee income in order for it to approve the loan?

• A).157 percent.
• B).331 percent.
• C).471 percent.
• D).531 percent.
• E).571 percent.

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Definitions:

Compounded Options

A financial derivative instrument that contains an option that itself has a feature making its payoff at least partially dependent on the future level of interest rates.

GICs

A kind of investment in Canada known as Guaranteed Investment Certificates that provide a promised return rate for a specified duration.

Nominal Annual Rates

The stated annual interest rate of a loan or investment, not accounting for compounding within the year.

Compounded Semiannually

The process where interest is calculated and added to the principal sum of a loan or deposit twice a year, leading to interest on interest.