A Regression of Sectoral Loan Losses Against Total Loans Losses

question 45

Multiple Choice

A regression of sectoral loan losses against total loans losses, both measured as a percentage of total loans, of a bank results in the following beta coefficients for the real estate (RE) and commercial (CL) loan variables: b_RE = 1.2, b_CL = 1.6. The intercept for both regressions is zero. The results can be interpreted as

• A)If the total loan losses of the bank measured as a percentage of total loans is 2 percent, the losses in the real estate sector, measured as a percentage of total loans, is 1.2 percent.
• B)If the total loan losses of the bank measured as a percentage of total loans is 2 percent, the losses in the commercial sector, measured as a percentage of total loans, is 3.2 percent.
• C)If the total loan losses of the bank measured as a percentage of total loans is 2 percent, the losses in the commercial sector, measured as a percentage of total loans, is 6.4 percent.
• D)If the total loan losses of the bank measured as a percentage of total loans is 3 percent, the losses in the commercial sector, measured as a percentage of total loans, is 5.2 percent.
• E)If the total loan losses of the bank measured as a percentage of total loans is 3 percent, the losses in the real estate sector, measured as a percentage of total loans, is 4 percent.

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Definitions:

Incentive Factors

Elements or conditions that motivate or encourage individuals to perform specific actions or behaviors.

Central Nervous System

Comprises the brain and spinal cord, responsible for processing information and controlling most functions of the body and mind.

Rescorla

A reference to Robert A. Rescorla, a psychologist known for his work with Pavlovian conditioning, particularly concerning the role of cognitive processes in classical conditioning.