13. Suppose that an FI holds two loans with the following characteristics. Annual Spread between Loan Rate and FI's cost of funds Loan 1 2 Xi ? ? 6% 4% A. X1 = 50%, X2 = 50% B. X1 = 40%, X2 = 60% C. X1 = 30%, X2 = 70% D. X1 = 20%, X2 = 80% E. X1 = 10%, X2 = 90% Annual Fees 2% 1% Loss to FI Given Default 40% 30% Expected Default Frequency 2.50% 1.50% Correlation -0.1 Using Moody's Analytics Portfolio Manager model, what portfolio weights do you want to put on the two loans in order to make the portfolio expected return equal to 5.04%

13. Suppose that an FI holds two loans with the following characteristics. Annual Spread between Loan Rate and FI's cost of funds Loan 1 2 Xi ? ? 6% 4% A. X1 = 50%, X2 = 50% B. X1 = 40%, X2 = 60% C. X1 = 30%, X2 = 70% D. X1 = 20%, X2 = 80% E. X1 = 10%, X2 = 90% Annual Fees 2% 1% Loss to FI Given Default 40% 30% Expected Default Frequency 2.50% 1.50% Correlation -0.1 Using Moody's Analytics Portfolio Manager model, what portfolio weights do you want to put on the two loans in order to make the portfolio expected return equal to 5.04%

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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