Q3. (10 points each, 20 points in total) Consider the following investment portfolio

3-1. What is the FI's expected return on its loan portfolio?

3-2. Calculate the risk on the bank's loan portfolio assuming the loan returns correlations are as follows: ??????= -0.20, ??????=0.15, and ??????= -0.30
 

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Loan Type A B Loan Amount Expected Return $200 million 8 percent $100 million 15 percent $400 million 20 percent Standard Deviation 2 percent 1 percent 4 percent Loan Type A B Loan Amount Expected Return $200 million 8 percent $100 million 15 percent $400 million 20 percent Standard Deviation 2 percent 1 percent 4 percent

Answer rating: 100% (QA)

A The expected return is 1585 We calculate the weighted average by taking the sum of loan amount and ... View the full answer