Consider an FI That Holds Two Loans with the Following

question 20

Multiple Choice

Consider an FI that holds two loans with the following characteristics: $$\begin{array} { | c | c | c | c | c | c | c | c | } \hline \text { Loan i } & \text { Weight I } & \begin{array} { c } \text { Annual } \\\text { loan rate }\end{array} & \begin{array} { c } \text { Annual Fl's cost of } \\\text { funds }\end{array} & \text { Annual fees } & \begin{array} { c } \text { Loss to Fl given } \\\text { default }\end{array} & \begin{array} { c } \text { Expected default } \\\text { frequency }\end{array} & \\\hline 1 & 0.30 & 10.0 \% & 4.5 \% & 2.0 \% & 25 \% & 4 \% & P _ { 12 } = - 0.25 \\\hline 2 & 0.70 & 11.0 \% & 5.0 \% & 1.5 \% & 20 \% & 3 \% & \\\hline\end{array}$$ What is the return on the loan portfolio (round to two decimals) ?

• A)6.50%
• B)6.90%
• C)13.40%
• D)6.78%

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Definitions:

Natural Selection

A process in evolutionary biology where organisms better adapted to their environment tend to survive and produce more offspring.

Authoritarian

Authoritarian describes a style of leadership or governance characterized by strong central power and limited political freedoms, or in the context of parenting, a style marked by strict rules and expectations with little room for dialogue.

Strict Guidelines

Strict guidelines refer to a set of precise and clear rules or principles designed to control or govern behavior or procedures.

Rejecting-neglectful

A parenting style characterized by a lack of responsiveness to a child's needs and a lack of demands, often resulting in negative outcomes for the child's development.