Q 50

Use the following information to answer the problems below. Consider two banks. Bank A has 1000 loans outstanding each for $100,000, that it expects to be fully repaid today. Each of Bank A's loans have a 6% probability of default, in which case the bank will receive $0 for each of the defaulting loans. Bank B has 100 loans of $1 million outstanding, which it also expects to be fully repaid today. Each of Bank B's loans have a 5% probability of default, in which case the bank will receive $0 for each of the defaulting loans. The chance of default is independent across all the loans. -The expected overall payoff to Bank B is: A) $5,000,000 B) $6,000,000 C) $94,000,000 D) $95,000,000

Multiple Choice