Consider two loan portfolios with loans all due today. Each loan has a principal balance of $10,000, with a default probability of 10% and a recovery rate of 40%. Loan portfolio A has 100 loans, either all default or all not default. Loan portfolio B has 100 independent loans. 

Calculate the standard deviations of the overall payoffs of portfolio A and portfolio B, respectively.

Answer rating: 100% (QA)

To calculate the standard deviations of the overall payoffs of portfolio A and portfolio B we need to consider the default probabilities and recovery ... View the full answer