Explanation:
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:
$40 million$360,000For the second position:
$60 million$1,650,000Total 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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