a bank is considering a new application for a loan submitted by one of its customers. assume that the bank would borrow at 5% and lend to its client at 5.8%. in addition, the bank has various fees to collect on the loan (0.5%of the loan amount). the duration of the loan is 3.5 years and R/(1+RL) is equal to -2%. the loan amount is 3,000,000 AED.

1. calculate capital at risk

2. calculate the RAROC of the loan

3. would the bank add the loan to its portfolio (accept) or reject it (reject) if we assume that its hurdle rate (return on equity) is equal 20%