In the Moody's Analytics Portfolio Model, the Risk of a Loan

question 1

Multiple Choice

In the Moody's Analytics portfolio model, the risk of a loan measures

• A)the product of the estimated loss given default and risk-free rate on a security of equivalent maturity.
• B)annual all-in-spread minus the loss given default.
• C)annual all-in-spread minus the expected default frequency.
• D)the product of the expected default frequency and the estimated loss given default.
• E)the volatility of the loan's default rate around its expected value times the amount lost given default.

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Definitions:

Marginal Cost

The additional cost incurred in producing one more unit of a good or service.

Variable Cost

Costs that change in proportion to the level of production or sales activity of a business.

Total Cost

The overall expense incurred in the production of goods or services, including both fixed and variable costs.

Fixed Cost

Expenses that do not change with the level of production or sales, such as rent, salaries, or insurance premiums.