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university of southern california Operations And Supply Chain Management Assignment Help - Derivatives-Capital


Question - A bank has booked a loan with total commitment of USD 50,000 of which 80% is currently outstanding. The default probability of the loan is assumed to be 2% for the next year and loss given default (LGD) is estimated at 50%. The standard deviation of LGD is 40% and the standard deviation of the default event indicator is 7%. Drawdown on default is assumed to be 60%. The expected losses for the bank are: a. USD 380 b. USD 420 c. USD 460 d. USD 500

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