Question: Raphael Bank has two loans, the first one is a commercial loan and the other one is a consumer loan. The commercial loan has a

Raphael Bank has two loans, the first one is a commercial loan and the other one is a consumer loan. The commercial loan has a value of $3845782, and its annual spread between loan rate and cost of funds is 3.2%, annual fees are 2.2%, loss given default is 42%, and expected default frequency is 8%. The consumer loan has a value of $ 276342, and its annual spread between loan rate and cost of funds is 2.5%, annual fees are 2.2%, loss given default is 21%, and expected default frequency is 19%. The correlation coefficient between the two loans is -0.08916.

Find the portfolio return (%) and portfolio standard deviation (%) by using Moodys KMV Portfolio Manager Model and Modern Portfolio Theory.

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