RAROC stands for Risk-Adjusted Return On Capital. RAROC is calculated by banks to assess risk on loans and other financial instruments.

A Term Loan is a simple loan. It requires a maturity date, allows all amortization types (bullet, annual, semi-annual, etc) and allows all fee & income types. A Risk Amount on a Term Loan is calculated as follows: outstanding amount plus percentage of unused (50% for facility rating 1-4, 95% for 5-8). A Term Loan's commitment amount reduces with principal repayments.

The following assumes a simple Term Loan for a Customer with a risk rating of 2.

ActionFixture
startRaroc
checkcustomers0
pressnew customer
enterfull namexyz corp
entershort namexyz
enterrating2
pressok
checkcustomers1
pressnew facility
entercustomerxyz
enterfacility rating1
entercurrencyUSD
enterdate of calculation09/03/02
entermaturity date09/03/03
entercommitment amount1000
enterinitial usage percentage100
enteramortization typebullet
enterbase rateLIBOR
enterspread10.0
presscalculate
checkrisk amount1000
checkincome1.0
checkduration0.98
checkcapital6
checkRAROC13.4