Consider two local banks. Bank A has 96 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 7% 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 $96 million outstanding, which it also expects will be repaid today. It also has a 7% 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.

Consider two local banks. Bank A has 96 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 7% 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 $96 million outstanding, which it also expects will be repaid today. It also has a 7% 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.

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

See similar textbooks

Similar questions

Consider two local banks. Bank A has 77 loans outstanding, each for $0.8 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 $61.6 million outstanding, which it also expects will be repaid today. It also has a 3% probability of not being repaid. Calculate: a. The expected payoff of Bank A. b. The expected payoff of Bank B. c. The standard deviation of the overall payoff of Bank A. d. The standard deviation of the overall payoff of Bank B. a. The expected payoff of Bank A. The expected payoff of Bank A is $ million. (Round to two decimal places.)
Consider two local banks. Bank A has 87 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 $87 million outstanding, which it also expects will be repaid today. It also has a 3% 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.)
Consider two local banks. Bank A has 95 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 4% 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 $95 million outstanding, which it also expects will be repaid today. It also has a 4% probability of not being repaid. Which bank faces less risk? Why? A. The expected payoff is higher for Bank A, but is riskier. I prefer Bank B. B. The expected payoffs are the same, but Bank A is less risky. I prefer Bank A. C. In both cases, the expected loan payoff is the same: $95 million×0.96=$91.2 million. Consequently, I don't care which bank I own. D. The expected payoffs are the same, but Bank A is riskier. I prefer Bank B.
Consider two local banks. Bank A has 81 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 $81 million outstanding, which it also expects will be repaid today. It also has a 3% 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.) The expected overall payoff of Bank B is $ million. (Round to the nearest integer.) b. The standard deviation of the overall payoff of each bank. The standard deviation of the overall payoff of Bank A is (Round to two decimal places.) The standard deviation of the overall payoff of Bank B is (Round to two decimal places.)
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 77 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 4% 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 $77 million outstanding, which it also expects will be repaid today. It also has a 4% 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.
Consider two local banks. Bank A has 100 loans outstanding, each for $1.3 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 $130 million outstanding, which it also expects will be repaid today. It also has a 3% 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 two decimal places.)
Two types of borrowers, type A and B, are requesting a loan in the amount of $44,000. Type A repays with prob. 1, while type B repays with prob. 0.76. If a bank cannot observe type, but believes that fraction 0.8 of the borrower pool is type A, then what is the competitive pooling rate the bank can offer these borrowers? 8.7% 7.7% 6.5% 5.0%
A commercial bank is planning to offer Luna a loan in the amount of $15,000 and the bank figures that Luna will repay the loan in full with probability 0.79 and default otherwise. Also, Luna has asked for an interest rate of 12%. In order for the bank to be able to offer this rate, what is the collateral amount that Luna must offer the bank in the event of default? $8,177.5 $8,228.6 $8,366.9 $8,401.1
We have the following information about a bank's balance sheet. Rate sensitive assets = $10,000,000 Fixed-rate assets = $20,000,000 Rate sensitive liabilities = $4,000,000 Fixed-rate liabilities = $26,000,000 Let's do a simple gap analysis. If the interest rate falls by 5 percent, O a. The bank will lose $300,000. O b. The bank will lose $500,000. O c. The bank will lose $200,000. O d. The bank will gain $300,000. O e. The bank will gain $200,000.
Bozo Bank makes a loan to Rizzo Razors. It has a base lending rate on loans of 11% and charges a risk premium of 3% on the loan. It does not charge an origination fee, but imposes compensating balances of 10%. Reserve Requirements are 10%, and they do not pay interest. a. What would be the approximate cost of the loan to Rizzo Razors? b. What would be the return to the bank?
a bank has a commercial loan portfolio of $50 million dollars. based on historic trend analysis it estimatesthat 50% of outstanding principal is not paid back. the bank determines 7% is the optimal interest rate tocharge on consumer loans. Based on the optimal interest rate and the estimate for loan losses what willcharge on its commercial loans to offset its expected loan losses? show your answer to four decimalplaces in a numeric format (if answer is 9.75% enter is .0975).

SEE MORE QUESTIONS

Recommended textbooks for you

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

Essentials Of Investments

Finance

ISBN:

9781260013924

Author:

Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:

Mcgraw-hill Education,

FUNDAMENTALS OF CORPORATE FINANCE

Finance

ISBN:

9781260013962

Author:

BREALEY

Publisher:

RENT MCG

Financial Management: Theory & Practice

Finance

ISBN:

9781337909730

Author:

Brigham

Publisher:

Cengage

Foundations Of Finance

Finance

ISBN:

9780134897264

Author:

KEOWN, Arthur J., Martin, John D., PETTY, J. William

Publisher:

Pearson,

Fundamentals of Financial Management (MindTap Cou…

Finance

ISBN:

9781337395250

Author:

Eugene F. Brigham, Joel F. Houston

Publisher:

Cengage Learning

Corporate Finance (The Mcgraw-hill/Irwin Series i…

Finance

ISBN:

9780077861759

Author:

Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor

Publisher:

McGraw-Hill Education

SEE MORE TEXTBOOKS