aianjie

 

2、Which of the following best describes the relationship between loan losses and economic capital?

A) Unexpected loss typically exceeds economic capital.

B) Economic capital typically exceeds unexpected loss.

C) Economic capital typically equals expected loss.

D) Expected loss typically exceeds economic capital.

aianjie

 

7、Smallville Savings Bank (SSB) has a loan portfolio totaling $20,000,000 in commitments. Currently 60% is outstanding. The bank has assessed an average internal credit rating equivalent to 2% default probability over the next year. Drawdown upon default is assumed to be 75%. The bank has additionally estimated a LGD of 60%. The standard deviation of EDF and LGD is 5% and 25%, respectively. The ratio of unexpected loss to expected loss is closest to:

A) 2.0.

B) 4.0.

C) 0.50.

D) 0.25.

aianjie

 

The correct answer is B

We can calculate the expected loss as follows:

EL = AE × EDF × LGD

Adjusted exposure = OS + (COM ? OS) × UGD = $20,000,000 × (0.6) + ($800,000) × (0.75) = $18,000,000.

EL = ($18,000,000) × (0.02) × (0.60) = $216,000.

Ratio = $834,626 / $216,000 = 3.86 (closest to 4.0).

aianjie

 

8、Smallville Savings Bank (SSB) has a loan portfolio totaling $20,000,000 in commitments. Currently 60% is outstanding. The bank has assessed an average internal credit rating equivalent to 2% default probability over the next year. Drawdown upon default is assumed to be 75%. The bank has additionally estimated a recovery rate of 60%. The standard deviation of EDF and LGD is 5% and 25%, respectively. The unexpected loss for SSB falls within which of the following ranges?

A) Greater than $750,000.

B) $250,001 to $500,000.

C) Less than $250,000.

D) $500,001 to $750,000.

aianjie

 

The correct answer is D

Note that a recovery rate of 60% implies a loss given default of 40%. We can calculate the expected loss as follows:

EL = AE × EDF × LGD

Adjusted exposure = OS + (COM ? OS) × UGD = $20,000,000 × (0.6) + ($8,000,000) × (0.75) = $18,000,000.

EL = ($18,000,000) × (0.02) × (0.40) = $144,000.

UL = 18,000,000×√(0.02 × 0.252 + 0.42×0.052) = $731,163

aianjie

 

The correct answer is D

The answer is clear from the equation of unexpected loss:

下载 (1.26 KB)
[2008]Topic 45: Unexpected Loss 相关习题

2009-6-30 09:55

 .

 

For example, doubling LGD will not double the unexpected loss (as it appears inside the square root).

aianjie

 

6、Which of the following statements about unexpected loss is TRUE?

A) Unexpected loss is a linear function of loss given default.

B) Loss given default is a non-linear function of unexpected loss.

C) Loss given default is a linear function of unexpected loss.

D) Unexpected loss is a non-linear function of loss given default.

aianjie

 

The correct answer is C

The answer is clear from the equation of unexpected loss:

下载 (1.26 KB)
[2008]Topic 45: Unexpected Loss 相关习题

2009-6-30 09:54

 .

 

For example, doubling adjusted exposure will double the unepected loss.

aianjie

 

The correct answer is

Unexpected loss is defined as :

下载 (1.26 KB)
[2008]Topic 45: Unexpected Loss 相关习题

2009-6-30 09:52

.

 

As usage given default goes up, adjusted exposure increases, thus ‘usage given default decreases’ is incorrect. If expected default frequency decreases UL will decrease. ‘Adjusted exposure increases but default frequency decreases’ is ambiguous. ‘Variance of default frequencies increases’ will increase UL as the last term in the square root will increase.

aianjie

 

4、John Clayburn is trying to parameterize a credit risk model for his employer, Syacmoor Bank. Based on a large sample of loans, he has estimated a default frequency of 12%. John knows that this is a necessary input to calculate the unexpected loss. Which of the following is closest to the standard deviation of Sycamoor’s default frequency?

A) 88%.

B) 35%.

C) 12%.

D) 11%.