Hi David,
I would appreciate it it you could you pls clarify the concept in the following note:
Page 5 in the Study Note of T7
Example 1, the cost of fund i.e. a deposit charge of 5% on$ 1.0 billion loan is computed to $47.5 instead of $50. Why?
Page 7 in the Study Note of T7 - Explain How the 2nd generation RAROC approach improve economic allocation decision
It is stated that "RAROC is sensitive to the level of standard deviation of risky assets, so RAROC may indicate that at project achieve the required hurdle rate, given high enough volatiry, even the net present vallue of the project is negative.
Pls elaborate how this concept becuase I thought riskly assets will result in high denominator i.e. economic capital, in turn will result in lower RAROC to indicate that this project risk return relationship.
Thank you.
I would appreciate it it you could you pls clarify the concept in the following note:
Page 5 in the Study Note of T7
Example 1, the cost of fund i.e. a deposit charge of 5% on$ 1.0 billion loan is computed to $47.5 instead of $50. Why?
Page 7 in the Study Note of T7 - Explain How the 2nd generation RAROC approach improve economic allocation decision
It is stated that "RAROC is sensitive to the level of standard deviation of risky assets, so RAROC may indicate that at project achieve the required hurdle rate, given high enough volatiry, even the net present vallue of the project is negative.
Pls elaborate how this concept becuase I thought riskly assets will result in high denominator i.e. economic capital, in turn will result in lower RAROC to indicate that this project risk return relationship.
Thank you.
