Which of the following statement(s) is(are) true?

Select one or more:

a.The Risk Premium does not consider the size of the loan.

b.The Altman Z-score analysis is part of the Hybrid system.

c.The limitation of Risk Premium Analysis is constrained to large firms.

d.Under Risk-premium analysis, different firms with the same credit ratings will have different probabilities of default.

e.None of the given answers.

Which of the following statement(s) is(are) true with respect to Risk Premium Analysis?

Select one or more:

a.It can be applied to the multiple-periods lending case due to the No-arbitrage condition.

b.The size of the loan doesn't matter when calculating the default of probability of the borrower.

c.The higher the returns of a borrower's bond, the lower the probability of default.

d.The more the collaterals offered by the borrower, the higher the risk premiums required.

e.None of the given answers

A corporate borrower would like to apply for a 10-year $5 million loan to finance its new project from Monash Bank. Monash bank would like to charge this borrower a 1% spread and 0.5% of origination fee and expect a 0.2% of the expected loss. Since the project is very complicated to evaluate, and it will cost Monash bank $ 18,000 to invite experts to assess it. Suppose the risk-adjusted factor (R)/(1+RL) and the tax rates are 1% and 25% respectively, what is the RORAC of this borrower?

Select one:

a.9%

b.5%

c.7%

d.3%

e.11%