In applying the loan loss ratio models, the loss rate "b" for the whole loan portfolio is

Question

Quizplus · Accepted Answer

The loss rate "b" for the whole loan portfolio represents the proportion of the portfolio that is expected to default or become uncollectible. As a result, it cannot be negative or greater than 1. A loss rate of 0 would mean that there are no expected losses, which is highly unlikely. A loss rate of 0.5 or 2 would mean that half or more than the entire portfolio would default, respectively, which is also highly unlikely. Thus, the best choice is C, which represents a loss rate of 100% or complete default on the portfolio.

In Applying the Loan Loss Ratio Models, the Loss Rate