Answer: SGD 7.5 million

## Explanation **Correct Answer: B** **Calculation**: 1. **Expected Loss (EL)** = Portfolio Value × Default Rate × (1 - Recovery Rate) - EL = 120,000,000 × 0.025 × (1 - 0.30) - EL = 120,000,000 × 0.025 × 0.70 - EL = SGD 2.1 million 2. **Unexpected Loss (UL)** = VaR - Expected Loss - UL = 9.6 million - 2.1 million - UL = SGD 7.5 million **Key Concept**: - **Expected Loss (EL)**: The average loss expected over time, calculated as PD × LGD × EAD - **Unexpected Loss (UL)**: The loss beyond what is expected, calculated as VaR minus Expected Loss - **VaR (Value at Risk)**: The maximum loss not exceeded with a given confidence level over a specified period In this case, the 1-year 99% VaR of SGD 9.6 million represents the worst-case loss at the 99% confidence level, and subtracting the expected loss gives us the unexpected loss component.

Author: LeetQuiz Editorial Team