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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 $100 million to Company A for a period of 5 years. The loan is secured by the corporate's building which is currently valued at $60 million. The bank's credit department has assigned a borrower rating of 5(with corresponding PD of 1.35% on the bank's rating scale) and a facility rating of E(which maps to a LGD of 45% on the bank's scale). How much capital would the bank need to set aside for the loan to Company A?(Note: The bank has an internal credit rating system to rate its borrowers, with grade 1 being the best and grade 10 being the worst/highest risk. Each grade corresponds to a PD that the bank has calculated from its past experience. It also has a facility rating scale from A to H, 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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