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Consider two local banks. Bank A has 100 loans outstanding, each for $1 million, which will be expected to be repaid tod
Posted: Wed Nov 24, 2021 9:16 am
by answerhappygod
- Consider Two Local Banks Bank A Has 100 Loans Outstanding Each For 1 Million Which Will Be Expected To Be Repaid Tod 1 (40.26 KiB) Viewed 83 times
Consider two local banks. Bank A has 100 loans outstanding, each for $1 million, which will be expected to be repaid today. Each loan has a 10% probability of default. And out of the case of default, 80% of the portion can be recovered by half of the amount of the total loan and the remainder 20% has no recovery of the loan. The chance of default is independent across all the loans. Bank B has only one loan of $100 million outstanding, which will be expected to be repaid today. This loan also has a 10% probability of default. And out of the case of default, 80% of the portion can be recovered by half of the amount of the total loan and the remainder 20% has no recovery of the loan. Calculate the standard deviation of the loss amount of loan due to the default for bank A and for bank B.