# Question: Consider two local banks Bank A has 100 loans outstanding

Consider two local banks. Bank A has 100 loans outstanding, each for $1 million, that it expects will be repaid today. Each loan has a 5% probability of default, in which case the bank is not repaid anything. The chance of default is independent across all the loans. Bank B has only one loan of $100 million outstanding, which it also expects will be repaid today. It also has a 5%probability of not being repaid. Explain the difference between the type of risk each bank faces. Which bank faces less risk? Why?

## Relevant Questions

Using the data in Problem 20, calculatea. The expected overall payoff of each bank.b. The standard deviation of the overall payoff of each bank.In Problem 20, Consider two local banks. Bank A has 100 loans outstanding, each ...Consider an economy with two types of firms, S and I. S firms all move together. I firms move independently. For both types of firms, there is a 60% probability that the firms will have a 15% return and a 40% probability ...Using the data from Table 11.3, what is the volatility of an equally weighted portfolio of Microsoft, Alaska Air, and Ford Motor stock?Calculate (a) the expected return and (b) the volatility (standard deviation) of a portfolio that consists of a long position of $10,000 in Johnson & Johnson and a short position of $2000 inWalgreenâ€™s.Your investment portfolio consists of $15,000 invested in only one stockâ€”Microsoft. Suppose the risk-free rate is 5%, Microsoft stock has an expected return of 12% and a volatility of 40%, and the market portfolio has an ...Post your question