A) has more credit risk than a futures contract. B) is more standardised than a futures contract. C) is marked to market more frequently than a futures contract. D) has a shorter time to delivery than a futures contract. A) has more credit risk than a futures contract. B) is more standardised than a futures contract. C) is marked to market more frequently than a futures contract. D) has a shorter time to delivery than a futures contract.

Consider an FI that holds two loans with the following characteristics: \[\begin{array} { | c | c | c | c | c | c | c | } \hline \text { Loan } i & \text { Weight } i & \begin{array} { c } \text { Annual spread between Ioan rate and Fl's } \\ \text { cost of funds } \end{array} & \begin{array} { c } \text { Annual fees } \\ \text { Loss to Fl given } \\ \text { default } \end{array} & \begin{array} { c } \text { Expected default } \\ \text { frequency } \end{array} & \\ \hline 1 & 0.45 & 3.5 \% & 1.5 \% & 30 \% & 4 \% & P _ { 12 } = - 0.20 \\ \hline 2 & 0.55 & 4.5 \% & 2.0 \% & 25 \% & 3 \% & \\ \hline \end{array}\] What is the risk of the loan portfolio (round to two decimals)?

A) 5.88% B) 10.01% C) 3.16% D) 4.26% A) 5.88% B) 10.01% C) 3.16% D) 4.26%

Consider the following portfolio of assets: \[\begin{array} { | c | c | c | c | c | c | } \hline \text { Loan } i & \text { Weight } i & \text { Expected return } i & \sigma i & \sigma i ^ { 2 } & \\ \hline 1 & 0.30 & 13 \% & 9.06 \% & 82.0 \% & \mathrm { P } _ { 12 } = - 0.87 \\ \hline 2 & 0.70 & 11 \% & 8.72 \% & 76.0 \% & \sigma _ { 12 } = - 75.0 \% \\ \hline \end{array}\] What is the expected return on the portfolio (round to two decimals)?

A) 0.3(13%) + 0.7(11%) = 11.60% B) (13% + 11%) / 2 = 12.00% C) (0.3)2(13%) + (0.7)2(11%) = 6.56% D) [(0.3)2(13%) + (0.7)2(11%)] * 2 = 13.12% A) 0.3(13%) + 0.7(11%) = 11.60% B) (13% + 11%) / 2 = 12.00% C) (0.3)2(13%) + (0.7)2(11%) = 6.56% D) [(0.3)2(13%) + (0.7)2(11%)] * 2 = 13.12%

Consider the following portfolio of assets: \[\begin{array} { | c | c | c | c | c | c | } \hline \text { Loan } i & \text { Weight } i & \text { Expected return i } & \sigma & \sigma ^ { 2 } & \\ \hline 1 & 0.45 & 15 \% & 6.05 \% & 36.60 \% & \mathrm { P } _ { 12 } = - 0.2 \\ \hline 2 & 0.55 & 13 \% & 8.75 \% & 76.56 \% & \sigma _ { 12 } = - 4.0 \% \\ \hline \end{array}\] What is the standard deviation of the portfolio (round to two decimals)?

A) (0.45)(F1F1F1S1?F1F1F1036.60) + (0.55)(F1F1F1S1?F1F1F1076.56) = 7.51% B) (F1F1F1S1?F1F1F1036.60) + (F1F1F1S1?F1F1F1076.56) = 14.80% C) F1F1F1S1?F1F1F1057.28 = 7.57% D) F1F1F1S1?F1F1F1025.33 = 5.03% A) (0.45)(F1F1F1S1?F1F1F1036.60) + (0.55)(F1F1F1S1?F1F1F1076.56) = 7.51% B) (F1F1F1S1?F1F1F1036.60) + (F1F1F1S1?F1F1F1076.56) = 14.80% C) F1F1F1S1?F1F1F1057.28 = 7.57% D) F1F1F1S1?F1F1F1025.33 = 5.03%