\[\begin{array} { c l l l } \text { Borrower Rating } & \text { Loan Amount } & \text { Expected Return } & \text { Standard Deviation } \\ \text { A } & \$ 40 \text { million } & 12 \text { percent } & 1 \text { percent } \\ \text { B } & \$ 20 \text { million } & 15 \text { percent } & 2 \text { percent } \\ \text { C } & \$ 30 \text { million } & 18 \text { percent } & 3 \text { percent } \end{array}\] -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. A) 15.00 percent. B) 18.00 percent. C) 12.00 percent. D) 14.67 percent. E) 13.33 percent.

\[\begin{array} { l c l l } & \text { National Benchmark } & \text { Bank A } & \text { Bank B } \\ \text { Consumer Loans } & 50 \text { percent } & 65 \text { percent } & 35 \text { percent } \\ \text { Commercial Loans } & 50 \text { percent } & 35 \text { percent } & 65 \text { percent } \end{array}\] -Estimate the standard deviation of Bank A's asset allocation proportions relative to the national benchmark.

A) 15.00 percent. B) 21.21 percent. C) 29.89 percent. D) 34.32 percent. E) 40.44 percent. A) 15.00 percent. B) 21.21 percent. C) 29.89 percent. D) 34.32 percent. E) 40.44 percent.

Exam 11: Credit Risk: Loan Portfolio and Concentration Risk

Which model involves estimating the systematic loan loss risk of a particular sector or industry relative to the loan loss risk of an FI's total loan portfolio?

(Multiple Choice)

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Question 21

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 -What is the FI's expected return on its loan portfolio?

(Multiple Choice)

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(98)

Question 22

If a bank's concentration limit (as a percentage of capital) is 25.0 percent, and it does not permit a loss of any loan to impact more than 10 percent of its capital, what is the expected recovery on loans that are defaulted?

(Multiple Choice)

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Question 23

According to Moody's Analytics, default correlations tend to be _ and lie between ___.

(Multiple Choice)

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Question 24

Which of the following observations concerning concentration limits is not true?

(Multiple Choice)

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(76)

Question 25

Kansas Bank has a policy of limiting their loans to any single customer so that the maximum loss as a percent of capital will not exceed 20 percent for both secured and unsecured loans. The limit has been adopted under the assumption that if the unsecured loan is defaulted, there will be no recovery of interest or principal payments. For loans that are secured (collateralized), it is expected that 40 percent of interest and principal will be collected. -What is the concentration limit (as a % of capital) for secured loans made by this bank?

(Multiple Choice)

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(77)

Question 26

If the amount lost per dollar on a defaulted loan is 40 percent, then a bank that does not permit the loss of a loan to exceed 10 percent of its bank capital should set its concentration limit (as a percentage of capital) to

(Multiple Choice)

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(72)

Question 27

National Benchmark Bank A Bank B Consumer Loans 50 percent 65 percent 35 percent Commercial Loans 50 percent 35 percent 65 percent -Estimate the standard deviation of Bank A's asset allocation proportions relative to the national benchmark.

(Multiple Choice)

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(73)

Question 28

Commercial bank call reports are provided by banks to the Federal Reserve and are useful in determining the proportion of loans in different classifications for the entire banking system.

(True/False)

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Question 29

A weakness of migration analysis to evaluate credit concentration risk is that the

(Multiple Choice)

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(78)

Question 30

The variance of returns of a portfolio of loans normally is equal to the arithmetic average of the variance of returns of the individual loans.

(True/False)

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Question 31

Under which model does an FI compare its own allocation of loans in any specific area with the national allocations across borrowers to measure the extent to which its loan portfolio deviates from the market portfolio benchmark?

(Multiple Choice)

4.9/5

(67)

Question 32

LNW Bank is charging a 12 percent interest rate on a $5,000,000 loan. The bank also charged $100,000 in fees to originate the loan. The bank has a cost of funds of 8 percent. The borrower has a five percent chance of default, and if default occurs, the bank expects to recover 90 percent of the principal and interest. -What is the expected return on the loan using the Moody's Analytics model?

(Multiple Choice)

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Question 33

If a bank's concentration limit (as a percent of capital) is 20 percent, and its expected recovery from defaulted loans is 50 percent, what is the maximum loss it permits to affect its capital in the event of a default?

(Multiple Choice)

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(87)

Question 34

In the use of modern portfolio theory (MPT), the sum of the credit risks of loans under estimates the risk of the whole portfolio.

(True/False)

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(85)

Question 35

The expected return of a portfolio of loans is equal to the weighted average of the expected returns of the individual loans.

(True/False)

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(74)

Question 36

LNW Bank is charging a 12 percent interest rate on a $5,000,000 loan. The bank also charged $100,000 in fees to originate the loan. The bank has a cost of funds of 8 percent. The borrower has a five percent chance of default, and if default occurs, the bank expects to recover 90 percent of the principal and interest. -What is the risk of the loan using the Moody's Analytics model?

(Multiple Choice)

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(67)

Question 37

One advantage of portfolio diversification methods is that they are applicable to all FIs, regardless of their size.

(True/False)

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Question 38

In applying the loan loss ratio models, the loss rate "β" for the whole loan portfolio is

(Multiple Choice)

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(71)

Question 39

What does Moody's Analytics Portfolio Manager Model use to identify the overall risk of the portfolio?

(Multiple Choice)

4.9/5

(80)

Question 40

Showing 21 - 40 of 59

Exam 11: Credit Risk: Loan Portfolio and Concentration Risk

Which model involves estimating the systematic loan loss risk of a particular sector or industry relative to the loan loss risk of an FI's total loan portfolio?

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 -What is the FI's expected return on its loan portfolio?

If a bank's concentration limit (as a percentage of capital) is 25.0 percent, and it does not permit a loss of any loan to impact more than 10 percent of its capital, what is the expected recovery on loans that are defaulted?

According to Moody's Analytics, default correlations tend to be _____ and lie between _______.

Which of the following observations concerning concentration limits is not true?

If the amount lost per dollar on a defaulted loan is 40 percent, then a bank that does not permit the loss of a loan to exceed 10 percent of its bank capital should set its concentration limit (as a percentage of capital) to

National Benchmark Bank A Bank B Consumer Loans 50 percent 65 percent 35 percent Commercial Loans 50 percent 35 percent 65 percent -Estimate the standard deviation of Bank A's asset allocation proportions relative to the national benchmark.

Commercial bank call reports are provided by banks to the Federal Reserve and are useful in determining the proportion of loans in different classifications for the entire banking system.

A weakness of migration analysis to evaluate credit concentration risk is that the

The variance of returns of a portfolio of loans normally is equal to the arithmetic average of the variance of returns of the individual loans.

Under which model does an FI compare its own allocation of loans in any specific area with the national allocations across borrowers to measure the extent to which its loan portfolio deviates from the market portfolio benchmark?

If a bank's concentration limit (as a percent of capital) is 20 percent, and its expected recovery from defaulted loans is 50 percent, what is the maximum loss it permits to affect its capital in the event of a default?

In the use of modern portfolio theory (MPT), the sum of the credit risks of loans under estimates the risk of the whole portfolio.

The expected return of a portfolio of loans is equal to the weighted average of the expected returns of the individual loans.

One advantage of portfolio diversification methods is that they are applicable to all FIs, regardless of their size.

In applying the loan loss ratio models, the loss rate "β" for the whole loan portfolio is

What does Moody's Analytics Portfolio Manager Model use to identify the overall risk of the portfolio?

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According to Moody's Analytics, default correlations tend to be _ and lie between ___.