Question: Need answer ASAP please! Consider two local banks. Bank A has 86 loans outstanding, each for $1.0 million that it expects will be repaid today.

Need answer ASAP please!

Consider two local banks. Bank A has 86 loans outstanding, each for $1.0 million that it expects will be repaid today. Each loan has a 7 % probability ofdefault, 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 $86 millionoutstanding, which it also expects will be repaid today. It also has a 7% probability of not being repaid. Which bank faces less risk? Why?

(Select the best choice below.)

A. The expected payoff is higher for Bank A, but is riskier. I prefer Bank B.

B. The expected payoffs are the same, but Bank A is riskier. I prefer Bank B.

C. The expected payoffs are the same, but Bank A is less risky. I prefer Bank A.

D. In both cases the expected loan payoff is the same: $86 million x 0.93 =$80.0 million. Consequently, I don't care which bank I own.

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