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

question 93

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 expected overall payoff to Bank B is:

• A)$5,000,000.
• B)$6,000,000.
• C)$94,000,000.
• D)$95,000,000.

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Definitions:

Least Squares Estimate

A statistical method used to minimize the sum of square differences between observed and estimated data points.

Dependent Variable

A variable in an experiment or model that is expected to change in response to changes in other variables.

Independent Variable

Factors in an experiment that are deliberately changed to test their impact on outcomes, observed through changes in the dependent variable.

Mean Square Error

A metric used to measure the average of the squares of the errors, indicating the discrepancy between estimated and actual values.