Assume a firm has issued common equity, subordinated debt but no preferred equity. What is a close approximation of the RAROC hurdle rate if the after tax cost of subordinated debt is 3%, tax rate is 20%, cost of equity is 8%, and capital is split 60/40 between equity and debt?

The hurdle rate cannot be determined as the cost of preferred equity is missing.

The hurdle rate 5.76%.

The hurdle rate is 5.0%.

The hurdle rate is 6.0%.