The following is a schedule of historical defaults (yearly and cumulative) experienced by an FI manager on a portfolio of commercial and mortgage loans.

a. Complete the blank spaces in the table.
b. What are the probabilities that each type of loan will not be in default after 5 years?
c. What is the measured difference between the cumulative default (mortality) rates for commercial and mortgage loans after four years?

Transcribed Image Text:

Years after Issuance Years Loan Tvpe Commercial 1 Year 3 Years 4 Years 5 Years Annual default Cumulative default 0.00% 0.50% 0.30% ー 0.10% 0.80% Mortgage 0.25% 0.80% Annual default Cumulative default 0.10% 0.60% 1.64%