Explanation:
The expected loss is calculated by multiplying the probability of default (PD) by the loss given default (LGD) and the exposure at default (EAD).
Calculation:
Expected Loss = PD × LGD × EAD
= 2% × 50% × $1,000,000
= 0.02 × 0.50 × $1,000,000
= $10,000
Explanation:
$1,000,000The Z-Score (1.645) and Standard deviation (2.59) are not needed for calculating expected loss, as they are typically used for calculating unexpected loss or value at risk measures.
Ultimate access to all questions.
An analyst is calculating the expected loss using the following information.
| Probability of default | 2% |
|---|---|
| Loss given default | 50% |
| Z-Score | 1.645 |
| Standard deviation | 2.59 |
| Exposure at default | $1,000,000 |
The expected loss is closest to?
A
$20,000
B
$500,000
C
$10,000
D
$51,800
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