Your financial institution uses the RAROC method of deciding whether to grant a loan or not. A potential borrower would like to borrow $1,000,000 for six years. Interest and principal will be amortized (12 equal payments) on a semi-annual basis at the end of each six month period. The base lending rate on this type of loan is 7.25%. In addition, the markup on the loan is 75 basis points, a 5% compensating balance is required, and the required reserve ratio is 10%. The file RAROC found at the class website gives data on the change in the risk premium (dR) for 300 similar loans during the past year. Calculate the RAROC for the 98^th percentile worst case scenario, the 99^th percentile worst case scenario, and the worst case scenario. (ignore convexity)

Already sort from largest to lowest and included 6th position for 98 percentile and 3th position for 99percentile

	300 similar loans	dR
	73	0.065987
	15	0.056888
	13	0.052656
	138	0.052471
	287	0.051925
	81	0.051836
	51	0.049375
	12	0.047586
	124	0.046212
	147	0.045273
	39	0.04521
	105	0.04398
	223	0.0428
	166	0.042749
	60	0.041984