Consider two local banks. Bank A has 89 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 6% probability of defaut, in which case the bank is not read anything. The chance of default is independent across all the loans Bank B has only one loan of $59 million outstanding, which it also expects will be repaid today. It also has a 6% probability of not being repaid Calculate the following: a. The expected overall payoff of each bank b. The standard deviation of the overall payoff of each bank The expected overall payoff of each bank The expected overall payoff of Bank A is $ million (Round to the nearest integer)
Consider two local banks. Bank A has 89 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 6% probability of defaut, in which case the bank is not read anything. The chance of default is independent across all the loans Bank B has only one loan of $59 million outstanding, which it also expects will be repaid today. It also has a 6% probability of not being repaid Calculate the following: a. The expected overall payoff of each bank b. The standard deviation of the overall payoff of each bank The expected overall payoff of each bank The expected overall payoff of Bank A is $ million (Round to the nearest integer)
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:Consider two local banks. Bank A has 89 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 6% probability of default, 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 $89 million outstanding, which it also expects will be repaid today. It also has a 6% probability of not
being repaid. Calculate the following:
a. The expected overall payoff of each bank.
b. The standard deviation of the overall payoff of each bank.
a. The expected overall payoff of each bank
The expected overall payoff of Bank A is $
million. (Round to the nearest integer.)
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