Question
1.) Find the expected loss or a borrower who has a default probability of 3% and a loss-given-default of 50%. 2.) Using the Table 5.1,
1.) Find the expected loss or a borrower who has a default probability of 3% and a loss-given-default of 50%.
2.) Using the Table 5.1, determine the weighted average risk score for a borrower with these characteristics: D/A = .50; CDRC = .75; ROA= 3%; current ratio = 1.10; operating ratio = .80; and LTV = .70. Are these characteristics relatively strong or weak?
3.) Using Table 5.2, determine the risk class for the loan characteristics in problem 2. Assume the borrower is rated average according to the management index (also note the differences in solvency measures)
4.) d. Using Table 5 .4, find the expected loss for the risk class determined in problem 3, assuming that loss-given-default is in class 4.
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