1. A firm is default and has not repaid the loan balance to the bank. Original Loan Balance at the date ofdefault is 60,000. At the end of year 1, the collection department contacts the defaulted obligor and itcosts the bank 2,000. Then the firm paid 30,000 at the end of year 1. At the end of year 2, the firm paid30,000. To collect the remaining loan the interest rate is 5%. What is the LGD rate?

A. 28.3%;

B. 10.2%;

C. 0%;

D. 7.9%

2. For a bank M, the balance of loans is $10,000. M also has an unconditional cancelable commitment withbalance $5,000. What is the Exposure of default of Bank M?

A. 15,000;

B. 10,000;

C. 5,000;

D. 0

3. Which of the following statements is (are) true with respect to incorporating independent variablesintoa model?

I. Independent variables may be incorporated into the model through the use of dummy variables thatmay take on a value of either 1 or -1.

II. In the case of the dependent variable being default, a probit model can be used to estimate theprobability of default taking place.

III. In the case of the dependent variable being default, a logistic model will use a normal probabilitydistribution to compute the probability of default taking place.

IV. A linear discriminate analysis is a scoring system, whereby if the collective score from the independentvariables exceeds a certain level, a value will be assigned to the dependent variable.

A. I and II

B. II and III

C. II and IV

4. A PCA is primarily used for ______.

A. binary classification

B. dimension reduction

C. clustering