A bank is using the RAROC to evaluate large business loans. The benchmark rate of return (ROE) is 7.55%. The 1-year loan interest rate is 8.00% and the bank must pay 7.40% to raise the funds to make the loan (this is the cost of capital). The cost to service the loan is 0.3%. If the loan defaults, 92% of the money lent will be lost. Based on historical default rates, the extreme worst-case loss scenario is about 5%. Should the bank make the loan? Why or why not?

a.) Yes, because the RAROC is 7.11%.
b.) No, because the RAROC is 7.11%.
c.) Yes, because the RAROC is 6.52%.
d.) No, because the RAROC is 6.52%.