Holyoke Bank has been approached by two farmers (A and B), whose Probability of Defaults are, respectively, 2% and 3%. The two loans considered by the farmers are: $100,000 (which Holyoke Bank assesses has a LGD of 20%); and $60,000 (with a LGD of 30%).

Question: For each farm/loan combination, calculate the EL rate and the EL amount.

Question: Farmer B wants to pursue the $60,000 loan; Farmer A the $100,000 loan. Which one of these combinations is more advantageous for the bank? Explain briefly