1. Suppose an Fl wants to evaluate the credit risk of a $10 million loan with a duration of 5 years to a AAA borrower. Based on historical data, only 1% of the publicly traded bonds in this class has an increase in risk premium greater than 2%. The bank has chosen the 99 percent worse- case scenairo as the estimated the maximum change in the risk premium. Assuming that the current average level of rates (R) on AAA bonds is 5 percent. the projected (one-year) spread plus fees is 30 basis points. The cost of funds (the RAROC benchmark) for the bank is 10%. Which of the following is true? A. Using the RAROC model, the bank should make the loan. B. Using the RAROC model, the bank can make the loan acceptable by raising the spread and fee together to 100 basis points. C. Using the RAROC model, the bank can make the loan acceptable by charging additional $50,000 in spread and fee. D. Using the RAROC model, the bank can make the loan acceptable using capital rationing. E. Using the RAROC model, the bank can make the loan acceptable by lowering the spread and fee together to 23 basis points