A bank is evaluating a $5 million loan to a steel manufacturer It expects to charge an

up-front fee of 0.10% and a service fee of 5 basis points. The loan has a maturity of

five years. The cost of funds (and the RAROC benchmark) is 6%. The risk premium

for similar companies is 0.18%. The current market rate for similar loans is 6.1%. The

99th (extreme case) loss rate for borrowers of this type has run at 3%. The dollar

proportion of similar loans has been 90%. Use the RAROC model to determine if the

bank should make the loan.