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Bank A has extended a commitment of $10,000,000 and assessed a probability of default of 5%. The loss given default based on historical data is estimated to be 30%. Bank B has extended a $5,000,000 commitment to a company with a lower credit quality. A default rate of 10% and loss given default of 20% is estimated. For Bank A to have a lower expected loss than Bank B, which of the following is TRUE? The recovery rate of: A. Bank B’s loan will decrease to 90%. B. Bank B’s loan will increase to 80%. C. Bank A’s loan will decrease to 80%. D. Bank A’s loan will increase to 90%. |