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

In order to estimate an efficient frontier for loans and determine the optimal proportions in which to hold loans made to different borrowers, all of the factors listed in choices A, B, C, and D are necessary. Without measuring the expected return, risk, and correlation of default risks for each loan, and without considering the expected return of the entire loan portfolio, it is impossible to determine an efficient frontier and make smart investment decisions. Therefore, the best choice is E, "All of the above."

Any Model That Seeks to Estimate an Efficient Frontier for Loans