A bank holds a loan portfolio with the following characteristics:   Loan i Xi Annual spread between loan rate and bank’s cost of funds Annual fees Loss to bank given default Expected default frequency Correlation 1 .6 6% 3% 20% 3% -0.2 2 .4 5% 2% 30% 5%     Question 1:  what is the return and standard deviation on loan 1? Question 2: what is the return and standard deviation on loan 2?

Q: Using the macroeconomic environment of a bank explain the effect on margin. Provide an example of…

A: Margin is referred to as the type of deposit that an investor uses to place with their broker at the…

Q: Default Pay Yourself First Interest occurs when a borrower is unable to meet the obligation of debt…

A: In this case we are given different terms related to finance in general and to use of borrowed money…

Q: Which broadly ranks credit default risk from lowest to highest?     Conforming, CRA, subprime…

A: Default risk is the risk that a lender takes on in the chance that a borrower will be unable to make…

Q: What is the first step in calculating the lender's effective yield and calculating the borrower's…

A: Amortization schedule refers to the statement showing the details of the loan amount, interest…

Q: Default Pay Yourself First Interest [Choose ] [Choose] is a strategy in which saving is prioritized…

A: Term given: 1.Default 2. Pay Yourself First 3. Interest

Q: decrease in reserve requirements could lead to an    A. increase in bank lending.   B. increase…

A: The Money supply and demand of money is affected by reserve requirement of bank which are placed by…

Q: nterest is a method of calculating the interest to be paid on a loan by combining the principal…

A: Add on interest refers to the method which is used when the person acquire the loan or the mortgage…

Q: Having longer-maturity assets than liabilities causes banks to bear which of the following risks? I.…

A: a risk is an uncertain event that will occur or non-occurring and implies future uncertainty and…

Q: Which is not a metric used by lenders to measure the overall suitability of a loan: 1) Loan to…

A: Loan to value ratio- It is a measure of indebtedness which divides the outstanding debt by the…

Q: Because banks accept short term fixed rate deposits they prefer to give loans where loan rate floats…

A: Fixed interest rates are 1%-2.5% higher than the floating interest rate. The increase and decrease…

Q: The internal rate of return on a mortgage loan calculated from the lender's perspective is more…

A: Discount point is the amount or a part of mortgage amount which the borrower pay at the time of…

Q: Equilibrium in the market for bank reserves determines ?

A: Hi, since there are multiple questions posted, we will answer the first question. If you want any…

Q: .The portion of the selling price paid by the customer at the time of purchase is called ________.…

A: Customers have to pay some amount to purchase on loan.

Q: The risk of not having sufficient cash and borrowing capacity to meet deposit withdrawals, loan…

A: Interest rate risk refers to risk of change in value of investments due to change in interest rates…

Q: 1. Explain the difference between debt to income (DTI) ratio and loan to value ratio (LTV). In…

A: We’ll answer the first question since the exact one wasn’t specified. Please submit a new question…

Q: Loans Loan Expected Standard Amount Return Deviation A $ 15 8.1% 1.1% million В $ 15 9.2% 1.3%…

A: The following solution is given below:

Q: When considering counterparty credit risk, which of the following financial products has the largest…

A: Counterparty credit risk (CCR) is the risk that a transaction's counterparty may default before the…

Q: q17 Which of the following types of loans has lower interest rate compared to others? a. Line of…

A: Which of the following types of loans has lower interest rate compared to others?   a. Line of…

Q: Which of the following statements regarding fixed-rate loans is true?   Group of answer choices a.…

A: Fixed rate loans are loans which have a fixed rate of interest.

Q: ing source of finance allows the holders to withdraw more than their balance ? a. Commercial Paper…

A: Financial instruments are instruments that have some monetary value and are created due to the…

Q: hich of the following is not a way in which banks lend short-term unsecured loans? a. Through a…

A: Banks give short term credits to the business to increase the business and grow business and provide…

Q: Which of the following is an example of a money market instrument? (Select all that apply) a. 2-year…

A: Money Market instruments:-Money market products are short-term financial instruments with a maturity…

Q: When a lender looks at your FICO credit score to decide whether to lend to you, which of the "Five…

A: When a lender looks at your FICO credit score to decide whether to lend to you, he is considering…

Q: 7. Supply for loanable funds shifts to the right while the constant. 8. Supply for loanable funds…

A: Interest rate on the loan depends on supply and demand in the market and changes according to that…

Q: What is discounting? / why do people discours?

A: As per Bartleby guidelines, If multiple questions are posted , only first 1 question will be…

Q: Modes of extinguishing obligations when creditor abandons his right to collect.

A: You have asked four different multiple choice question and as our guidelines are concerned we…

Q: FINANCIAL RISK MANAGEMENT  1. Duration is a measure of interest rates risk. (True/ False) 2. Bond…

A: The answers and explanations are provided below:

Q: What aspect of FHA loans made them particularly attractive to investment companies such as life…

A: FHA loans can be referred as the loans that are ussually required lesser financial obligations and…

Q: Part B: Choose the correct option for each question (loans) A) increased, increased B) increased,…

A: The length of a loan, also referred to as the loan term or maturity, represents the duration over…

Q: a bank that makes most of its long term loans at fixed interest rates is reducing ceedit risk and…

A: The banks can make a loan with both of the terms i.e short term loan or long term loans.

Q: When both deposit and loan interest rates decrease at the same speed in the market, a bank tends to…

A: Loan interest rate is the rate at which interest is charged by bank on the lent amount. Deposit is…

Q: Different compounding periods, are used for different types of investments. In order to properly…

A: The Effective Rate is the interest rate that takes into account the compounding of interest over a…

Q: Does Loan Meet Written Loan Policy and How Would Loan Be Affected By Changing Laws and Regulations…

A: A loan is a sum of money that is borrowed, typically from a financial institution such as a bank or…

Q: Which is NOT a factor of a credit score? O Credit History Length O Debt Burden Payment History Asset…

A: “Since you have asked multiple question, we will solve the first question for you. If you want any…

Q: The average maturity of its assets is larger than that of its deposits, as is typical of most banks.…

A: “Hey, since there are multiple questions posted, we will answer first question. If you want any…

Q: What is a common method used by banks to account for the interest income on loans that

A: The most common method used by banks to account for the interest income on loans that considers…

Q: Asset-based lending is typically used to finance a. accounts receivable b. real estate. c.…

A: Asset-based lending is typically used to finance  c. construction and development projects.     A…

Q: Δ%(MV)  = -MD*Δr When we use this equation to evaluate a loan, this equation does not totally…

A: The values of the loans change when there is a change in the interest rates. The duration helps to…

Q: Q4: From the standpoint of a borrower, is long-term or short-term credit riskier?

A: Short-term loans have to be repaid within the operating cycle of the firm which is usually less than…

Q: The interest rate that banks provide to the customers for the savings deposit account is more than…

A: The bank provides different types of rates on different types of investment.

Q: If the risk premlum on a commercial bank rises, so will the required rate of return by lInvestors…

A: Since you have asked multiple questions, we will solve the first question for you. If you want any…

Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.