Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Consider two local banks. Bank A has 1 1 0 loans outstanding, each for $ 1 . 3 million, that it expects will be repaid

Consider two local banks. Bank A has 110 loans outstanding, each for $1.3 million, that it expects will be repaid today.
Each loan has a 3% probability of default, in which case the bank is not repaid anything. The chance of default is
independent across all the loans. Bank B has only one loan of $143 million outstanding, which it also expects will be
repaid today. It also has a 3% probability of not being repaid. Calculate the following:
a. The expected overall payoff of each bank.
b. The standard deviation of the overall payoff of each bank.
a. The expected overall payoff of each bank.
The expected overall payoff of Bank A is $138.71 million. (Round to two decimal places.)
The expected overall payoff of Bank B is $138.71 million. (Round to two decimal places.)
b. The standard deviation of the overall payoff of each bank.
The standard deviation of the overall payoff of Bank A is $2.3210 million. (Round to four decimal places.)
The standard deviation of the overall payoff of Bank B is $ million. (Round to four decimal places.)
Need only the answer to part b please
image text in transcribed

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

How Finance Works

Authors: Mihir Desai

1st Edition

1633696707, 978-1633696709

More Books

Students also viewed these Finance questions