Consider an FI That Holds Two Loans with the Following

question 8

Multiple Choice

Consider an FI that holds two loans with the following characteristics: $$\begin{array} { | c | c | c | c | c | c | c | } \hline \text { Loan } i & \text { Weight } i & \begin{array} { c } \text { Annual spread between Ioan rate and Fl's } \\\text { cost of funds }\end{array} & \begin{array} { c } \text { Annual fees } \\\text { Loss to Fl given } \\\text { default }\end{array} & \begin{array} { c } \text { Expected default } \\\text { frequency }\end{array} & \\\hline 1 & 0.45 & 3.5 \% & 1.5 \% & 30 \% & 4 \% & P _ { 12 } = - 0.20 \\\hline 2 & 0.55 & 4.5 \% & 2.0 \% & 25 \% & 3 \% & \\\hline\end{array}$$ What is the risk of the loan portfolio (round to two decimals) ?

• A)5.88%
• B)10.01%
• C)3.16%
• D)4.26%

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Definitions:

Manager's Ability

The skills and competencies of a manager in effectively leading, making decisions, and achieving organizational goals.

Psychological Groups

Collections of individuals who are connected through shared beliefs, emotional bonds, or collective behaviors, influencing each other's psychological states.

Cohesive Groups

Groups characterized by strong bonds and mutual respect among members, leading to increased collaboration and productivity.

Emergent Groups

Groups that form spontaneously based on shared interests or goals, especially in response to specific events or conditions.