Consider an FI That Holds Two Loans with the Following

question 41

Multiple Choice

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

• A)4.90%
• B)3.41%
• C)4.16%
• D)6.10%

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Definitions:

Force Exerted

The interaction that causes a change in the motion of an object, quantified by Newton's laws.

Arterial Blood Pressure

The pressure exerted by circulating blood upon the walls of blood vessels, specifically within arteries, crucial for maintaining blood flow through the body.

Smooth Muscle

Type of muscle found in the walls of internal organs such as the stomach, intestines, and blood vessels, functioning involuntarily.

Arteries

Blood vessels that carry oxygen-rich blood away from the heart to various parts of the body.