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Assume a bank lends $ 1 0 0 million to Company A for a period of 5 years. The loan is secured by the corporate's
Assume a bank lends $ million to Company A for a period of years. The loan is secured by the corporate's building which is currently valued at $ million. The bank's credit department has assigned a borrower rating of with corresponding PD of on the bank's rating scale and a facility rating of which maps to a LGD of on the bank's scale How much capital would the bank need to set aside for the loan to Company ANote: The bank has an internal credit rating system to rate its borrowers, with grade being the best and grade being the worsthighest risk. Each grade corresponds to a PD that the bank has calculated from its past experience. It also has a facility rating scale from to with each grade corresponding to a specific LGD derived from the bank's own historical data. The bank calculates its capital requirements based on AIRB At the time of loan origination, find the capital requirement K using the AIRB formula.
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