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Relegated Regulated Credit Corp., a depository institution regulated by the Fed, has the segments below that comprise its loan portfolio. Its cost of funding is 2.00%. (All rates are per annum.) It has 54 billion in Tier 1 regulatory capital and must maintain ar 8% Tier 1 capital ratio. • 500 billion in high grade loans at 20% risk weight (RW), 2.25 % interest, and a 0.01% expected loss (EL) • 350 billion in A-rated quality loans at 50% RW, 3.25% interest, and a 0.05% EL 225 billion in BBB quality loans at 100% RW, 4.00% interest, and a 0.20% EL • 100 billion in low credit quality loans at 150% RW, 8.00% interest, and a 2.75% EL Assuming the bank is meeting its regulatory capital requirement, which loan segment has the highest expected return on regulatory capital? O High Grade A-Rated Quality BBB-Rated Quality O Low Credit Quality

Relegated Regulated Credit Corp., a depository institution regulated by the Fed, has the segments below that comprise its loan portfolio. Its cost of funding is 2.00%. (All rates are per annum.) It has 54 billion in Tier 1 regulatory capital and must maintain ar 8% Tier 1 capital ratio. • 500 billion in high grade loans at 20% risk weight (RW), 2.25 % interest, and a 0.01% expected loss (EL) • 350 billion in A-rated quality loans at 50% RW, 3.25% interest, and a 0.05% EL 225 billion in BBB quality loans at 100% RW, 4.00% interest, and a 0.20% EL • 100 billion in low credit quality loans at 150% RW, 8.00% interest, and a 2.75% EL Assuming the bank is meeting its regulatory capital requirement, which loan segment has the highest expected return on regulatory capital? O High Grade A-Rated Quality BBB-Rated Quality O Low Credit Quality

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Relegated Regulated Credit Corp., a depository institution regulated by the Fed, has the segments below that comprise its loan portfolio. Its cost of funding is 2.00%. (All rates are per annum.) It has 54 billion in Tier 1 regulatory capital and must maintain an 8% Tier 1 capital ratio. • 500 billion in high grade loans at 20% risk weight (RW), 2.25% interest, and a 0.01% expected loss (EL) • 350 billion in A-rated quality loans at 50% RW, 3.25% interest, and a 0.05% EL · 225 billion in BBB quality loans at 100% RW, 4.00% interest, and a 0.20% EL • 100 billion in low credit quality loans at 150% RW, 8.00% interest, and a 2.75% EL Assuming the bank is meeting its regulatory capital requirement, which loan segment has the highest expected return on regulatory capital? High Grade A-Rated Quality O BBB-Rated Quality O Low Credit Quality
Transcribed Image Text:Relegated Regulated Credit Corp., a depository institution regulated by the Fed, has the segments below that comprise its loan portfolio. Its cost of funding is 2.00%. (All rates are per annum.) It has 54 billion in Tier 1 regulatory capital and must maintain an 8% Tier 1 capital ratio. • 500 billion in high grade loans at 20% risk weight (RW), 2.25% interest, and a 0.01% expected loss (EL) • 350 billion in A-rated quality loans at 50% RW, 3.25% interest, and a 0.05% EL · 225 billion in BBB quality loans at 100% RW, 4.00% interest, and a 0.20% EL • 100 billion in low credit quality loans at 150% RW, 8.00% interest, and a 2.75% EL Assuming the bank is meeting its regulatory capital requirement, which loan segment has the highest expected return on regulatory capital? High Grade A-Rated Quality O BBB-Rated Quality O Low Credit Quality
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