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What should be interest rate spread to make economic return

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Reference no: EM132950842

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%

Problem 1: What should be the interest rate spread to make the economic return equal to zero?

Reference no: EM132950842

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