Any Model That Seeks to Estimate an Efficient Frontier for Loans

question 12

Multiple Choice

Any model that seeks to estimate an efficient frontier for loans, and thus the optimal proportions in which to hold loans made to different borrowers, needs to determine and measure the

• A)expected return on each loan to a borrower.
• B)risk of each loan made to a borrower.
• C)correlation of default risks between loans made to borrowers.
• D)expected return of the entire loan portfolio
• E)All of the above.

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Definitions:

Perpetual Inventory System

An inventory accounting system where updates are made continuously as transactions occur, providing a real-time inventory level.

Perpetual Inventory System

A system of inventory accounting that instantly logs inventory sales or purchases using computerized point-of-sale systems and software for enterprise asset management.

Gross Method

An accounting method where purchases are recorded at their full (gross) cost without deducting any cash discounts.

Credit Terms

Conditions under which credit is extended by a lender to a borrower, including the repayment period, interest rate, and the amount of the loan.