Any model that seeks to estimate an efficient frontier for loans, and thus the optimal proportions in which to hold loans made to different borrowers, needs to determine and measure the

Question

Quizplus · Accepted Answer

To estimate an efficient frontier for loans, and determine the optimal proportion in which to hold loans made to different borrowers, an analysis needs to consider all of the options listed. The expected return on each loan to a borrower and the risk of each loan made to a borrower are both important factors that must be quantified before determining the optimal proportions. Additionally, the correlation of default risks between loans made to borrowers will have a significant impact on the overall risk and return of the portfolio. Finally, the expected return of the entire loan portfolio is necessary to understand the overall performance of the portfolio. Therefore, all of the options are important in determining an efficient frontier for loans.

Any Model That Seeks to Estimate an Efficient Frontier for Loans