Regina Bank Has a Policy of Limiting Their Loans to Any

question 27

Multiple Choice

Regina Bank has a policy of limiting their loans to any single customer so that the maximum loss as a percent of capital will not exceed 20 percent for both secured and unsecured loans. The limit has been adopted under the assumption that if the unsecured loan is defaulted, there will be no recovery of interest or principal payments. For loans that are secured (collateralized) , it is expected that 40 percent of interest and principal will be collected. What is the concentration limit (as a % of capital) for secured loans made by this bank?

• A)10 percent.
• B)20 percent.
• C)33 percent.
• D)40 percent.
• E)50 percent.

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Definitions:

Odds

The ratio of the probability of an event happening to the probability of it not happening, often used in gambling and statistics.

Probability

A numerical representation, ranging from 0 to 1, indicating the probability of an event's occurrence.

Explanatory Variable

An explanatory variable is a type of independent variable that is used to explain variations in the dependent variable.

Statistical Inference

The process of drawing conclusions about a population's characteristics based on a sample drawn from it.