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2. Suppose that an FI holds two loans with the following characteristics. Annual Spread between Loan Rate and FI's Cost of Funds 5.5% 3.5 Loan

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2. Suppose that an FI holds two loans with the following characteristics. Annual Spread between Loan Rate and FI's Cost of Funds 5.5% 3.5 Loan 1 2 Xi 0.45 0.55 Annual Fees 2.25% 1.75 Loss to FI Given Default 30% 20 Expected Default Frequency 3.5% 1.0 P12=-0.15 Calculate of the return and risk on the two-asset portfolio using Moody's Analytics Portfolio Manager

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