If the Amount Lost Per Dollar on a Defaulted Loan

question 21

Multiple Choice

If the amount lost per dollar on a defaulted loan is 40 percent,then a bank that does not permit the loss of a loan to exceed 10 percent of its bank capital should set its concentration limit (as a percentage of capital) to

• A)5 percent.
• B)15 percent.
• C)25 percent.
• D)30 percent.

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Definitions:

Price of Capital

The cost of using capital goods in production, which can include interest, depreciation, and other expenses related to the acquisition and use of capital assets.

Units of Output

The quantity of goods or services produced by a company, individual, or industry.

Variable Cost

Costs that are directly influenced by the scale of manufacturing.

Monthly Lease

A contract outlining the rental agreement for a property on a month-to-month basis.