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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. $500,001 to $750,000. B. Greater than $750,000. C. $250,001 to $500,000. D. Less than $250,000. |