Question 3: Assume the following expected income on the loan of $200,000:

• Interest Income rate on loans = 7%
• Interest expense rate on deposit accounts that will fund the loan = 5.5%
• Overhead expense rate to administer the loans = .75%
• Expected loss rate on the loan = .40%

Part A. If the "economic capital" is $7,000 what is the Risk Adjusted Rate of Return? Input your answer in the XX.XX% format

Part B. Should the bank make this loan if the expected hurdle rate is 15%? Input your answer as either Yes or No