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(a) Discuss the RAROC Model and briefly explain how this model uses the concept of duration to measure the risk exposure of a loan. (b)
(a) Discuss the RAROC Model and briefly explain how this model uses the concept of duration to measure the risk exposure of a loan.
(b) Discuss how loan portfolio risk differs from individual loan risks, and briefly identify and explain the benefits of loan portfolio diversification.
Suppose that a financial institution holds two lonas with the following characteristics:
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