From the perspective of the lending FI, the risk of a well-diversified portfolio of loans should be less than weighted average risk of the individual loans.

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This is because the risk of default or loss in a well-diversified portfolio is spread out among multiple loans, reducing the impact of any single loan default. As a result, the overall risk is lower than the weighted average risk of the individual loans.

From the Perspective of the Lending FI, the Risk of a Well-Diversified