Computing the financial institution expected return

Reference no: EM13827812

Problem:

A. Borrower Rating                          Loan Amount   Expected Return Standard Deviation
   A       $40 million       12 percent       1 percent
   B                                                   $20 million       15 percent       2 percent
   C                                                   $30 million       18 percent       3 percent

1. What is the FI's expected return on its loan portfolio?

a. 15.00 percent.
b. 18.00 percent.
c. 12.00 percent.
d. 14.67 percent.
e. 13.33 percent.

2. What is the risk (standard deviation of returns) on the bank's loan portfolio if loan returns are uncorrelated (r = 0)?

a. 1.41 percent.
b. 1.63 percent.
c. 0.93 percent.
d. 3.57 percent.
e. 1.18 percent.

Additional Information:

This question basically from Finance and it is about computing the financial institution's expected return on its loan portfolio with standard deviation and loan amounts given.

Reference no: EM13827812

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