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CFA Candidates
AIM 10: Explain credit optionality.
Credit optionality on a commitment is best viewed as:
A) call option for the lender.
B) put option for the borrower.
C) call option for the borrower.
D) put option for the lender.
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The correct answer is C
The commitment fee gives the borrower the right, but not the obligation, to draw down on the commitment at any time.
AIM 11: Define, calculate and interpret the expected loss on a loan.
1、Identify the effect of increasing LGD on expected loss.
A) No effect.
B) Increase.
C) Decrease.
D) LGD is not a component of expected loss.
The correct answer is B
Expected loss is calculated as follows: EL = AE × LGD × EDF. Therefore, increasing LGD directly increases expected loss.
2、Identify the effect of decreasing adjusted exposure on expected loss.
A) Decrease.
B) No effect.
C) Increase.
The correct answer is A
Expected loss is calculated as follows: EL = AE × LGD × EDF. Therefore, decreasing AE will directly decrease expected loss.
3、If the adjusted exposure for Bank X is $15 million, the probability of default is 2%, and the recovery rate is 20%, what is the expected loss for Bank X?
A) $60,000.
B) $300,000.
C) $3,000,000.
D) $240,000.
The correct answer is
We can calculate the expected loss as follows.
EL = AE × EDF × LGD
EL = ($15,000,000) × (0.02) × (0.80)
= $240,000.
4、Given the following information, compute the loss given default and recovery rate.
§ Expected loss = $200,000.
§ Exposure = $5,000,000.
§ Probability of loss = 5%.
Loss given default Recovery rate
A) 0.20 0.80
B) 0.02 0.08
C) 0.80 0.20
D) 0.08 0.02
$200,000 = $5,000,000 × (1 ? RR) × (0.05). Therefore, the recovery rate = 20% and loss given default = 80%.
发表于 2009-6-27 16:02
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