Scribd
Upload
291 views1 page

RAROC Analysis of Investment Strategies

The document outlines an organization's investments and loans over 4 periods (I-IV). It shows: - Investments in government securities and loans to companies of varying credit ratings. - The annual income, costs, profits, returns, risk weighted assets, capital requirements, and risk-adjusted returns for each period. - Key metrics like return on assets, risk-adjusted return on assets, and risk-adjusted return on capital are presented to analyze performance over the periods.

Uploaded by

Venkatsubramanian R Iyer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd
291 views1 page

RAROC Analysis of Investment Strategies

The document outlines an organization's investments and loans over 4 periods (I-IV). It shows: - Investments in government securities and loans to companies of varying credit ratings. - The annual income, costs, profits, returns, risk weighted assets, capital requirements, and risk-adjusted returns for each period. - Key metrics like return on assets, risk-adjusted return on assets, and risk-adjusted return on capital are presented to analyze performance over the periods.

Uploaded by

Venkatsubramanian R Iyer
Copyright
© © All Rights Reserved
We take content rights seriously. If you suspect this is your content, claim it here.
Available Formats
Download as DOCX, PDF, TXT or read online on Scribd

Particulars of investment/ lending I II III IV

Investment in Govt. Sec. with yield 5% and RW 5% 1000 400 300 300

Lending to AAA rated Co. with yield 8% & RW 20% 0 600 300 300

Lending to AA rated Co. with yield 10% and RW 50% 0 0 400 200

Lending to A rated Co. with yield 12% and RW 100% 0 0 0 200


TOTAL INVESTMENT 1000 1000 1000 1000

Particulars of income / cost / profit / return I II III IV


Annual Income based on yield on invested amount 50.00 72.00 82.00 86.00
Annual Cost of borrowing @ 3% per annum 30.00 30.00 30.00 30.00
Net income net of borrowing cost ( Income – cost) 20.00 42.00 52.00 56.00
ROA in % = ( Net Income / Investment ) * 100 2.00% 4.20% 5.20% 5.60%
Total Risk Weighted Assets 50.00 120.00 260.00 360.00
Capital Required @ 8% (Rs. In Crore) = Expected loss 4.00 9.60 20.80 28.80
Annual Income net of expected loss 16.00 32.40 31.20 27.20
Risk adjusted return on Assets 2.00% 3.24% 3.12% 2.72%
= (Annual Net Income net of expected loss / Investment ) * 100
RAROC 400.00% 337.50% 150.00% 94.44%
= (Annual Net Income net of expected loss / Capital) * 100

You might also like