Hi In the solution, why do we take 15% (capital requirement criteria) of the "Economic Capital Requirement" ? Really confused by the data header, the question, and the solution. Thanks
Hi Jensen, The question was worded in a slightly unusual way, because the ST7 Core Reading refers to the "capital requirement" as an absolute amount (in £ say), whereas in this context the examiners were referring to the cost of capital (a percentage). Hence, in this context, the question was asking us to calculate the absolute (£ amount) cost of holding capital (= capital held x cost of capital %), where the cost of capital was given in the question as 15%. Kind regards, Katherine.
