Consider two local banks. Bank A has 92 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 3% 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 $92 million outstanding, which it also expects will be repaid today. It also has a 3% probability of not being repaid. Calculate the following: The expected payoff of Bank A. The expected payoff of Bank B. The standard deviation of the overall payoff of Bank A. The standard deviation of the overall payoff of Bank B.
Consider two local banks. Bank A has 92 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 3% 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 $92 million outstanding, which it also expects will be repaid today. It also has a 3% probability of not being repaid. Calculate the following: The expected payoff of Bank A. The expected payoff of Bank B. The standard deviation of the overall payoff of Bank A. The standard deviation of the overall payoff of Bank B.
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
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Consider two local banks. Bank A has 92 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 3% 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 $92 million outstanding, which it also expects will be repaid today. It also has a 3% probability of not being repaid. Calculate the following:
- The expected payoff of Bank A.
- The expected payoff of Bank B.
- The standard deviation of the overall payoff of Bank A.
- The standard deviation of the overall payoff of Bank B.
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