can someone guide me how to do question 41 ?
115 * .04 * (1-.35) = 2.99
72 * .07 * (1-.2) = 4.032
2.99 + 4.032 = 7.022 Answer B
I assumed it’s asking for loss at maturity so I added the interest payment. If you do it at inception, you get a lower number but B would still be the answer you’d choose.
thanks what is the formula u used.
sorry to hassle u
i did not study finance at uni
Prob of default * Exposure at default * Loss given default
Probability of default * (Principal plus interest) * (1 - Recovery Rate)
so basically we are adding the interest to the 100 million
Yup 15% interest on the 100 mio and 20% on the 60 mio.
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