= An FI has a loan portfolio of 10,000 loans of $10,000 each. The loans have a historical average default rate of 4 percent, and the severity of loss is 40 cents per dollar. Over the next year, what are the probabilities of having default rates of 2, 3, 4, 5, and 8 percent? What would be the dollar loss on the portfolios with default rates of 4 and 8 percent? How much capital would need to be reserved to meet the 1 percent worstcase loss scenario? What proportion of the portfolio’s value would this capital reserve be?