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What is the bank implied return of return on equity

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Reference no: EM133047718

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Q1) Refer to the information below for a bank lender:

Administrative/operating cost 0.10%Expected loss: 0.50%

Regulatory risk weight for the bank asset (Loan): 102%

Regulatory capital ratio (equity/RWA): 8.00%

Bank's funding cost: 5.00%

Bank's interest rate spread: 1.7%

Bank's required rate of return on equity: 20%

What is the bank's implied return of return on equity (pre-tax)?

Q2) Refer to the information below for a bank lender:

Administrative/operating cost 0.10%

Expected loss: 0.50%

Regulatory risk weight for the bank asset (Loan): 135%

Regulatory capital ratio (equity/RWA): 8.00%

Bank's funding cost: 3.8%

Bank's required rate of return on equity: 20%

What should be the interest rate spread to make the economic return equal to zero?

Q3) Refer to the information below for a bank lender:

Administrative/operating cost 0.10%

Expected loss: 0.30%

Regulatory risk weight for investment grade loan: 75%

Regulatory risk weight for sub-investment grade loan: 150%

Portfolio weight for investment grade loan: 41%

Regulatory capital ratio (equity/RWA): 8.00%

Bank's funding cost: 4.00%

Bank's interest rate spread: 1.7%

Bank's required rate of return on equity: 20%

What is the economic return for the lender?

Reference no: EM133047718

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