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B. Some banks spread between cost of funds and interest charged is 3.5% and administrative costs are 0.9% and the bank can earn 2% on

B. Some banks spread between cost of funds and interest charged is 3.5% and administrative costs are 0.9% and the bank can earn 2% on the capital reserve. Define RAROC and calculate RAROC first ignoring the capital reserve interest and then including it.

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