The risk of the loan reflects the volatility of the loan's default rate around its expected value divided by the amount lost given default.

Question

Quizplus · Accepted Answer

The risk of a loan primarily reflects the probability of default (likelihood that the borrower will fail to meet obligations) and the loss given default (amount lost if the borrower defaults), not the volatility of the loan's default rate around its expected value divided by the amount lost given default.

The Risk of the Loan Reflects the Volatility of the Loan's