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:

Emotions

Complex psychological states that involve a physiological response, subjective experience, and behavioral expression in response to a stimulus.

Brain Maturation

The process of development and differentiation of the brain, resulting in the establishment of fully functional brain structures and neural networks.

Social

The term 'social' refers to relating to society or its organization, including interactions and relationships among individuals.

Self-Esteem

An individual’s overall subjective emotional evaluation of their own worth.