Question

Which of the following is correct regarding Risk Adjusted Returns on investment?
I.         It is the process where a Risk in a business or investment, is netted against the returns from it
II.         Higher the Risk Adjusted Return on capital higher is the reward for investors
III.         The investors would have more performance for such investments

Q: Answer-Which of the following is correct regarding Risk Adjusted Returns on investment? I. It...

Risk Adjusted Return On Capital It gives us a clear understanding of risk and reward on capital used and, therefore, it provides a good measure of performance across all business units and business activities. It is defined as a ratio of expected risk adjusted net income, net of taxes to economic capital expressed in percentage. If a banks RAROC is higher than the cost of banks equity, then the bank is deemed to be adding value to shareholders economic value added.