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Consider two local banks. Bank A has 92 92 loansoutstanding, each for$1.0 million, that it expects will be repaid today. Each loan has a 5
Consider two local banks. Bank A has 92
92 loansoutstanding, each for$1.0 million, that it expects will be repaid today. Each loan has a 5 %
5% probability ofdefault, 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 $ 92
$92 millionoutstanding, which it also expects will be repaid today. It also has a 5 %
5% probability of not being repaid. Calculate thefollowing
The standard deviation of the overall payoff of Bank A is?
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