Use the Following Information to Answer the Problem(s)below

question 62

Multiple Choice

Use the following information to answer the problem(s) below.
Consider two banks.Bank A has 1000 loans outstanding each for $100,000,that it expects to be fully repaid today.Each of Bank A's loans have a 6% probability of default,in which case the bank will receive $0 for each of the defaulting loans.Bank B has 100 loans of $1 million outstanding,which it also expects to be fully repaid today.Each of Bank B's loans have a 5% probability of default,in which case the bank will receive $0 for each of the defaulting loans.The chance of default is independent across all the loans.
-The standard deviation of the overall payoff to Bank B is closest to:

• A)$751,000.
• B)$2,179,000.
• C)$2,375,000.
• D)$21,794,000.

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Definitions:

Sodium Bicarbonate

A chemical compound commonly known as baking soda, used in baking, cleaning, and as an antacid.

Neutralization

A chemical reaction in which an acid and a base react quantitatively, producing water and a salt, effectively nullifying extreme pH levels.

Folic Acid

A B-vitamin that is essential for DNA synthesis and repair, and is crucial during early pregnancy to prevent neural tube defects in the embryo.

Hemoglobin

A protein in red blood cells responsible for carrying oxygen from the lungs to the body's tissues and returning carbon dioxide from the tissues back to the lungs.