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:

Tangible Asset

Physical and material assets that can be seen, touched, or quantified, such as machinery, buildings, and inventory.

Goodwill

The intangible asset that arises when a business is acquired for more than the fair value of its net identifiable assets.

GAAP

Generally Accepted Accounting Principles; a collection of standardized guidelines and practices for financial accounting used in a particular jurisdiction.