Question
Consider two local banks. Bank A has 82 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a
Consider two local banks. Bank A has 82 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 4% 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 $82 million outstanding, which it also expects will be repaid today. It also has a 4% 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 Bank A is $........million.(round to the nearest integer)
the expected overall payoff of Bank B is $........million (round to the nearest integer)
b.) The standard deviation of the overall payoff of Bank A is.......( round to two decimal places)
The standard deviation of the overall payoff of Bank B is......(round to two decimal places)
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