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NEW QUESTION: 1
A portfolio has two loans, A and B, each worth $1m. The probability of default of loan A is 10% and that of loan B is 15%. The probability of both loans defaulting together is 1%. Calculate the expected loss on the portfolio.
A. 0
B. 1
C. 2
D. 3
Answer: D
Explanation:
Explanation
The easiest way to answer this question is to ignore the joint probability of default as that is irrelevant to expected losses. The joint probability of default impacts the volatility of the losses, but not the expected amount. One way to think about it is to think of asset portfolios, where diversification reduces risk (ie standard deviation) but the expected returns are nothing but the average of the expected returns in the portfolio. Just as the expected returns of the portfolio are not affected by the volatility or correlations (these affect standard deviation), in the same way the joint probability of default does not affect the expected losses. Therefore the expected losses for this portfolio are simply $1m x 10% + $1m x 15% = $250,000.
This can also be seen from the lens of a joint probability distribution as follows:
There are four possibilities for this portfolio:
- Only loan A defaults: loss of $1m: 9% probability
- Only loan B defaults: loss of $1m: 14% probability
- Both loan A and B default: loss of $2m: 1% probability
- Neither A nor B default: loss of $0m: 76% probability
Therefore the expected losses on the portfolio are ($1m x 9%) + ($1m x 14%) + ($2m x 1%) + ($0m x 76%) =
$250,000.
(Notes: How is the above table calculated? The totals (10%, 90%, 15% and 85%) are filled in first. The top left cell (both A & B default) is given as 1%. We can now calculate the rest of the cells as the totals are known.)
NEW QUESTION: 2
A project requires an initial outlay of $2 million which can be financed with either a bank loan or finance lease.
The company will be responsible for annual maintenance under either option.
The tax regime is:
* Tax depreciation allowances can be claimed on purchased assets.
* If leased using a finance lease, tax relief can be claimed on the interest element of the lease payments and also on the accounting depreciation charge.
The trainee management accountant has begun evaluating the lease versus buy decision and has produced the following dat a. He is not confident that all this information is relevant to this decision.
Using only the relevant data, which of the following is correct?
A. The bank loan is $120,000 LESS expensive than the finance lease.
B. The bank loan is $30,000 MORE expensive than the finance lease.
C. The bank loan is $20,000 LESS expensive than the finance lease.
D. The bank loan is $70,000 LESS expensive than the finance lease.
Answer: D
NEW QUESTION: 3
All of the following statements regarding Control Accounts are true EXCEPT:
A. A control account is an assigned WBS level used to monitor cost and schedule performance of significant element of work.
B. Each work package/ planning package may be associated with multiple control account
C. A control account is a management control point for cost summarization, scope description, and variance analysis and reporting
D. Control accounts are also referred to as cost accounts
E. Each Control Account contains one or more work packages and planning packages
Answer: B
NEW QUESTION: 4
A. Option D
B. Option B
C. Option C
D. Option A
Answer: D
Explanation:
Explanation
A resource file is an XML file that contains the strings that you want to translate into different languages or paths to images. The resource file contains key/value pairs. Each pair is an individual resource. Key names are not case sensitive. For example, a resource file might contain a resource with the key Button1 and the value Submit.
You create a separate resource file for each language (for example, English and French) or for a language and culture (for example English [U.K.], English [U.S.]). Each localized resource file has the same key/value pairs; the only difference is that a localized resource file can contain fewer resources than the default resource file.
The built-in language fallback process then handles loading the neutral or default resource.
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