Suppose that an FI holds two loans with the following characteristics.

Spread Between Loan Rate and FI's Loan X Cost of Funds 1 ? 4.0% 2 ? 2.5 Loss to Fl Expected Annual Given Default Fees Default Frequency 1.50% ?% 4.0% P12 = -.10 1.15 ? 1.5 == The return on loan 1 is R = 6.25%, the risk on loan 2 is = 1.8233%, and the return of the portfolio is R, = 4.555%. Calculate of the loss given default on loans 1 and 2, the proportions of loans 1 and 2 in the portfolio, and the risk of the portfolio, p, using Moody's KMV Portfolio Manager. LO.1