Question: The following formula expresses the expected amount lost when a borrower defaults on a loan, where PD is the probability of default on the

The following formula expresses the expected amount lost when a borrower defaults on a loan, where PD is the probability of default on the loan, EAD is the exposure at default (the face value of the loan), and LGD is the loss given default (expressed as a decimal). For a certain class of mortgages, 7% of the borrowers are expected to default. The face value of these mortgages averages $220,000. On average, the bank recovers 70% of the mortgaged amount if the borrower defaults by selling the property. Complete a through c below. Expected Loss = PD EAD XLGD (a) What is the expected loss on a mortgage? Expected loss = $ (Type an integer or a decimal.)

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