A. Borrower Rating Loan Amount Expected Return Standard Deviation
A $40 million 12 percent 1 percent
B $20 million 15 percent 2 percent
C $30 million 18 percent 3 percent
1. What is the FI's expected return on its loan portfolio?
a. 15.00 percent.
b. 18.00 percent.
c. 12.00 percent.
d. 14.67 percent.
e. 13.33 percent.
2. What is the risk (standard deviation of returns) on the bank's loan portfolio if loan returns are uncorrelated (r = 0)?
a. 1.41 percent.
b. 1.63 percent.
c. 0.93 percent.
d. 3.57 percent.
e. 1.18 percent.
The question belongs to Finance and it is about calculating the financial institution’s expected return on its loan portfolio with standard deviation and loan amounts given.
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