Credit Risk Diversification Occurs When

question 91

Multiple Choice

Credit risk diversification occurs when

• A) adding loans to the portfolio increases the variability of the loan portfolio.
• B) loans from similar borrowers are combined in a portfolio.
• C) adding loans to the portfolio decreases the variability of the loan portfolio.
• D) combining loans with similar payment patterns in a single portfolio.

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Definitions:

Capacity

The maximum level of output that a company can sustain to produce in a given period under normal circumstances.

Absorption Costing

An approach in accounting where the total manufacturing expenses, including direct materials, direct labor, and both kinds of manufacturing overhead (variable and fixed), are included in a product's costing.

Variable Costing

An accounting method that includes only variable production costs (direct materials, direct labor, and variable manufacturing overhead) in product costs.

Product Cost

Product cost encompasses all costs directly involved in manufacturing a product, including raw materials, labor, and manufacturing overhead.