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Question 4 (17 marks). The following table shows the details of the two loans made by Bank ABC. By employing the KMV model, compute the

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Question 4 (17 marks). The following table shows the details of the two loans made by Bank ABC. By employing the KMV model, compute the return and risk of Bank ABC's overall loan portfolio which is made up of two loans with a correlation coefficient of -0.15. Weight Annual Spread between Annual Fees Loss to Bank Loan Rate and Bank's Given Default Cost of funds (LGD) Expected Default Frequency (EDF) Loan 1 60% 2.8% 1.9% 25% 3% Loan 2 40% 2.9% 1.8% 20% 2%

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