1. Confidence Bank has made a loan to Risky Corporation. The loan terms include a default risk free borrowing rate of 8%, a risk premium of 3%, an origination fee of 0.1875%, and a 9% compensating balance requirement. Required reserves at the Federal Reserve are 6%, what is the expected or promised gross return on the loan? (5 points) Wells Fargo is using RAROC to evaluate large business loans. The benchmark rate of return is 15%. The one year loan earns 9% and the bank must pay 8.1% to raise the funds. If the loan defaults, 90% of the money lent will be lost. Based on historical default rates, the extreme worst loss case scenario is about 5%. Should the bank make the loan? Give the reason for your answer. (5 points) 2