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%

---

Definitions:

Sociological Variable

A measurable attribute that represents a concept of interest in sociological research, used to observe and analyze social phenomena.

Representative

An individual who is elected or chosen to speak, act, or make decisions on behalf of a larger group.

Interviewed

A process where individuals are asked questions to obtain information, insights, or opinions.

Canadian Adults

Individuals over the age of majority living in Canada, participating in its society, culture, and economy.