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Given the following data on two loan portfolios, A and B, estimate the required regulatory...

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Finance

Given the following data on two loan portfolios, A and B, estimate the required regulatory capital under Basel I, the economic capital, the expected profit, and the RORAC and ROE for each business line. Assume the loan balance is $100 million for each portfolio.

image COF=Cost of Funds, EL=Expected Loss, WC=Worst Case Loss, and G&A=General and Administrative expenses, each as a % of assets.

Which business is more attractive? Why?

Loan portfolio Yield Risk weight 100% 50% COF 1% WC 22% 7% G&A 1% 1% 4% 1% 496 Loan portfolio Yield Risk weight 100% 50% COF 1% WC 22% 7% G&A 1% 1% 4% 1% 496

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