When a Bank Suspects That a $1 Million Loan Might

question 89

Multiple Choice

When a bank suspects that a $1 million loan might prove to be bad debt that will have to be written off in the future the bank

• A)can set aside $1 million of its earnings in its loan loss reserves account.
• B)reduces its reported earnings by $1,even though it has not yet actually lost the $1 million.
• C)reduces its assets immediately by $1 million,even though it has not yet lost the $1 million.
• D)reduces its reserves by $1 million,so that they can use those funds later.

---

Definitions:

Standard Deviation

A measure of the amount of variation or dispersion of a set of values; a low standard deviation indicates that the values tend to be close to the mean, while a high standard deviation indicates that the values are spread out over a wider range.

Uniformly Distributed

Describes a distribution in which all outcomes are equally likely, showing no preference for any interval of values within the range of the distribution.

Assembling Product

The process of combining various components or elements to create a finished product.

Probability

The probability of an event happening, quantified by a number ranging from 0 to 1.