Use the Following Information to Answer the Problem(s)below

question 95

Multiple Choice

Use the following information to answer the problem(s) below.
Consider two banks.Bank A has 1000 loans outstanding each for $100,000,that it expects to be fully repaid today.Each of Bank A's loans have a 6% probability of default,in which case the bank will receive $0 for each of the defaulting loans.Bank B has 100 loans of $1 million outstanding,which it also expects to be fully repaid today.Each of Bank B's loans have a 5% probability of default,in which case the bank will receive $0 for each of the defaulting loans.The chance of default is independent across all the loans.
-The expected overall payoff to Bank A is:

• A)$5,000,000.
• B)$6,000,000.
• C)$94,000,000.
• D)$95,000,000.

---

Definitions:

Residual Dividend Policy

A strategy where dividends paid to shareholders are based on earnings left after the firm has funded all its capital investments.

Dividend Per Share

Dividend per share (DPS) is the sum of declared dividends issued by a company for every ordinary share outstanding.

Net Income

Net income is the total earnings of a company after all expenses and taxes have been deducted from revenue.

Marginal Propensity

The proportion of an additional income that an individual is likely to consume rather than save.