Cadigal Bank has compiled the following migration matrix on consumer loans. The higher the risk grade the higher the default risk. If in the most recent year, the bank manager finds that the transition probability from risk grade 1 to 3 is 0.05 and to 4 is 0.06, then the bank manager should take which of the following actions to reduce concentration risk? Risk Grade at End of Year 2 .08 .84 .09 Risk grade at beginning of year 1 2 3 1 .88 .10 .02 Select one: O a. Restrict supply of loans to risk grade 1 borrowers. O b. Increase credit risk premium on risk 3 borrowers. O C. Restrict supply of loans to risk grade 2 borrowers. O d. Increase supply of loans to risk grade 2 borrowers. O e. Increase supply of loans to risk grade 3 borrowers. 3 .02 .03 .78 4 .02 .02 .11
Cadigal Bank has compiled the following migration matrix on consumer loans. The higher the risk grade the higher the default risk. If in the most recent year, the bank manager finds that the transition probability from risk grade 1 to 3 is 0.05 and to 4 is 0.06, then the bank manager should take which of the following actions to reduce concentration risk? Risk Grade at End of Year 2 .08 .84 .09 Risk grade at beginning of year 1 2 3 1 .88 .10 .02 Select one: O a. Restrict supply of loans to risk grade 1 borrowers. O b. Increase credit risk premium on risk 3 borrowers. O C. Restrict supply of loans to risk grade 2 borrowers. O d. Increase supply of loans to risk grade 2 borrowers. O e. Increase supply of loans to risk grade 3 borrowers. 3 .02 .03 .78 4 .02 .02 .11
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:Cadigal Bank has compiled the following migration matrix on consumer loans. The higher the risk grade the higher the default risk. If in the
most recent year, the bank manager finds that the transition probability from risk grade 1 to 3 is 0.05 and to 4 is 0.06, then the bank manager
should take which of the following actions to reduce concentration risk?
Risk Grade at End of Year
2
.08
.84
.09
Risk grade at
beginning of
year
1
2
3
e.
1
.88
.10
.02
Select one:
O a. Restrict supply of loans to risk grade 1 borrowers.
O b. Increase credit risk premium on risk 3 borrowers.
O c. Restrict supply of loans to risk grade 2 borrowers.
O d. Increase supply of loans to risk grade 2 borrowers.
Increase supply of loans to risk grade 3 borrowers.
3
.02
.03
.78
4
.02
.02
.11
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