Consider an FI that holds two loans with the following characteristics: $$\begin{array} { | c | c | c | c | c | c | c | c | }
\hline \text { Loan } i & \text { Weight I } & \begin{array} { c }
\text { Annual } \
\text { Ioan rate }
\end{array} & \begin{array} { c }
\text { Annual Fl's cost of } \
\text { funds }
\end{array} & \text { Annual fees } & \begin{array} { c }
\text { Loss to Fl given } \
\text { default }
\end{array} & \begin{array} { c }
\text { Expected default } \
\text { frequency }
\end{array} & \
\hline 1 & 0.30 & 10.0 \% & 4.5 \% & 2.0 \% & 25 \% & 4 \% & \mathrm { PP } _ { 12 } = 0.25 \
\hline 2 & 0.70 & 11.0 \% & 5.0 \% & 1.5 \% & 20 \% & 3 \% & \
\hline
\end{array}$$ What is the risk of the loan portfolio (round to two decimals)?
A)4.90%
B)3.41%
C)4.16%
D)6.10%

Question

Consider an FI that holds two loans with the following characteristics: $$\begin{array} { | c | c | c | c | c | c | c | c | } 
\hline \text { Loan } i & \text { Weight I } & \begin{array} { c } 
\text { Annual } \
\text { Ioan rate }
\end{array} & \begin{array} { c } 
\text { Annual Fl's cost of } \
\text { funds }
\end{array} & \text { Annual fees } & \begin{array} { c } 
\text { Loss to Fl given } \
\text { default }
\end{array} & \begin{array} { c } 
\text { Expected default } \
\text { frequency }
\end{array} & \
\hline 1 & 0.30 & 10.0 \% & 4.5 \% & 2.0 \% & 25 \% & 4 \% & \mathrm { PP } _ { 12 } = 0.25 \
\hline 2 & 0.70 & 11.0 \% & 5.0 \% & 1.5 \% & 20 \% & 3 \% & \
\hline
\end{array}$$ What is the risk of the loan portfolio (round to two decimals)?
A)4.90%
B)3.41%
C)4.16%
D)6.10%

Quizplus · Accepted Answer

The Answer of Consider an FI that holds two loans with the following characteristics: $$\begin{array} { | c | c | c | c | c | c | c | c | } 
\hline \text { Loan } i & \text { Weight I } & \begin{array} { c } 
\text { Annual } \
\text { Ioan rate }
\end{array} & \begin{array} { c } 
\text { Annual Fl's cost of } \
\text { funds }
\end{array} & \text { Annual fees } & \begin{array} { c } 
\text { Loss to Fl given } \
\text { default }
\end{array} & \begin{array} { c } 
\text { Expected default } \
\text { frequency }
\end{array} & \
\hline 1 & 0.30 & 10.0 \% & 4.5 \% & 2.0 \% & 25 \% & 4 \% & \mathrm { PP } _ { 12 } = 0.25 \
\hline 2 & 0.70 & 11.0 \% & 5.0 \% & 1.5 \% & 20 \% & 3 \% & \
\hline
\end{array}$$ What is the risk of the loan portfolio (round to two decimals)?
A)4.90%
B)3.41%
C)4.16%
D)6.10%

Consider an FI That Holds Two Loans with the Following