Questions and Problems: (Note: students will be responsible for checking each question to make sure it is free of mistakes with regard to numbers and information) Q14) CountrySide Bank uses Moody's Analytics Portfolio Manager to evaluate the risk-return characteristics of the loans in its portfolio. A specific $10 million loan earns 2 percent per year in fees, and the loan is priced at a 4 percent spread over the cost of funds for the bank. Because of collateral considerations, the loss to the bank if the borrower defaults will be 30 percent of the loan's face value. The expected probability of default is 5 percent What is the anticipated retum on this loan? What is the risk of the loan? Q15) Suppose that an Fl holds two loans with the following characteristics. Loan Xi Annual Spread Annual Los to FlExpected between loan rate Frees Given Default and Fi's Cost of Default Frequency Funds 17 40% 2.50 -0.10 2 12.5 2.15 20 The return on loan 1 is R. = 6.25%, the risk on loan 2 is 6 = 1.8233% and the return of the portfolio is R - 4.555%. Calculate of the loss give default on loans 1 and 2, the proportions of loans 1 and 2 in the portfolio, and the risk of the portfolio, ,, using Moody's Analytics Portfolio Manager. 1