Answer-first summary for fast verification
Answer: $2,010,000
**Explanation:** The expected loss (EL) is calculated using the formula: EL = Exposure × Probability of Default × Loss Given Default Where Loss Given Default (LGD) = 1 - Recovery Rate **Calculation:** For the first position: - Exposure = $40 million - PD = 3% = 0.03 - Recovery Rate = 70% = 0.70 - LGD = 1 - 0.70 = 0.30 - EL₁ = 40,000,000 × 0.03 × 0.30 = $360,000 For the second position: - Exposure = $60 million - PD = 5% = 0.05 - Recovery Rate = 45% = 0.45 - LGD = 1 - 0.45 = 0.55 - EL₂ = 60,000,000 × 0.05 × 0.55 = $1,650,000 **Total Expected Loss** = EL₁ + EL₂ = $360,000 + $1,650,000 = $2,010,000 Therefore, the expected loss for the portfolio is $2,010,000.
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Q-104. What is the expected loss (ELp) for a portfolio with the following characteristics?
$40 million exposure at 3% probability of default with 70% recovery rate$60 million exposure at 5% probability of default with 45% recovery rateA
$1,500,000
B
$1,800,000
C
$2,010,000
D
$2,500,000
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