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If a default occurs, all losses between 20% and 50% of the principal are equally likely. If the loan does not default, a profit of $0.5 million is made. What is the bank's one-year 99.5% VaR? a. 3.3 million b. 4.2 million C. 4.7 million d. 3.5 million

If a default occurs, all losses between 20% and 50% of the principal are equally likely. If the loan does not default, a profit of $0.5 million is made. What is the bank's one-year 99.5% VaR? a. 3.3 million b. 4.2 million C. 4.7 million d. 3.5 million

Holt Mcdougal Larson Pre-algebra: Student Edition 2012
Holt Mcdougal Larson Pre-algebra: Student Edition 2012
1st Edition
ISBN:9780547587776
Author:HOLT MCDOUGAL
Publisher:HOLT MCDOUGAL
Chapter11: Data Analysis And Probability
Section11.8: Probabilities Of Disjoint And Overlapping Events
Problem 2C
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A bank has two $10 million one-year loans. The probabilities of default are as indicated in the following table. Outcome Probability Neither loan defaults 95% Loan 1 defaults; Loan 2 does not default 2.5% Loan 2 defaults; Loan 1 does not default 2.5% Both loans default 0% If a default occurs, all losses between 20% and 50% of the principal are equally likely. If the loan does not default, a profit of $0.5 million is made. What is the bank's one-year 99.5% VaR? a. 3.3 million b. 4.2 million C. 4.7 million d. 3.5 million
Transcribed Image Text:A bank has two $10 million one-year loans. The probabilities of default are as indicated in the following table. Outcome Probability Neither loan defaults 95% Loan 1 defaults; Loan 2 does not default 2.5% Loan 2 defaults; Loan 1 does not default 2.5% Both loans default 0% If a default occurs, all losses between 20% and 50% of the principal are equally likely. If the loan does not default, a profit of $0.5 million is made. What is the bank's one-year 99.5% VaR? a. 3.3 million b. 4.2 million C. 4.7 million d. 3.5 million
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