Question
In: Finance
Suppose that a bank has a total of $100 million of credit exposure, and the worst-case...
Suppose that a bank has a total of $100 million of credit exposure, and the worst-case default rate over one-year is equal to 0.031. Which of the following is true about the WCDR? Select one: a. The WCDR is a positive function of the correlation between loans. b. If loan defaults are independent of one another, then WCDR < 0.031. c. According to Basel requirements the WCDR is the default rate by time T = one year that will not be exceeded with probability 99.9%. d. All answers provided are correct.
Solutions
Expert Solution
c. According to Basel requirements the WCDR is the default rate by time T = one year that will not be exceeded with probability 99.9%.
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