P1.T4.207. Expected and unexpected credit loss

[Suzanne Evans]

Questions:

207.1. Of a bank's original commitment (COM) of $20.0 million, 30.0% is outstanding (OS) and the remainder is unused. The bank assumes a usage given default (UGD; aka, drawdown given default) is 50.0%. The default probability (PD or EDF) is 1.0% and the loss given default (LGD) is 65.0%. What is the expected loss (EL)?

a. $22,300
b. $84,500
c. $130,000
d. $209,320

207.2. Credit unexpected loss (UL) is an linear and increasing function of which of the following?

a. Adjusted exposure
b. Probability of default (EDF)
c. Standard deviation of default probability
d. Loss given default (LGD)

207.3. A bank's economic capital (EC) for an exposure is calibrated at four standard deviations from the expected value of the exposure at the future horizon; i.e., EC = 4*UL, where UL is one standard deviation. Of the original $100.0 million commitment, 20% is outstanding and the estimated drawdown given default (UGD) is 50.0%. The probability of default (EDF) is 2.0%. Both the loss given default (LGD) and the standard deviation of LGD are 40.0%. Which is nearest to the exposure's economic capital?

a. $2.0 million
b. $4.8 million
c. $19.1 million
d. $59.4 million

Answers:

• Here in forum

 

[Tarun Kaushal]

i cant view the answers.. whenever i click on the link provided i get an error.. Pls help..

 

[David Harper CFA FRM]

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