Calculate Expected Return On Loans Portfolio For A Financial Institution

Question

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.

Summary

The question belongs to Finance and it is about calculating the financial institution’s expected return on its loan portfolio with standard deviation and loan amounts given.

Total Word Count 58