Explanation

C is correct. Using Equation (3.15), the unexpected loss contribution for a single credit asset (ULCᵢ) is derived as follows:

$$ULC_i = UL_i * \sqrt{p}$$

where $p =$ pairwise default correlation = 0.25,

and,

$$UL_i = \text{unexpected loss of each loan} = EA * \sqrt{(PD * \sigma_{LR}^2 + LR^2 * \sigma_{PD}^2)}$$

where,

• EA = loan exposure amount = CNY 3,000,000
• PD = 0.04
• $\sigma^2(PD) = 0.196^2 = 0.0384$
• $LR^2 = 0.15^2 = 0.0225$
• $\sigma^2(LR) = 0.09^2 = 0.0081$

Therefore,

$$UL_i = \text{CNY } 3,000,000 * \sqrt{0.04 * 0.0081 + 0.0225 * 0.0384}$$ $$= \text{CNY } 3,000,000 * \sqrt{0.000324 + 0.000864} = \text{CNY } 103,402.13$$

Thus,

$$ULC_i = 103,402.13 * \sqrt{0.25} = \text{CNY } 51,701.07$$

A is incorrect. CNY 18,000 is not related to the calculation.

B is incorrect. CNY 25,851 is the result obtained by incorrectly getting the product of ULᵢ and p.

D is incorrect. CNY 103,402 is the unexpected loss (ULᵢ) itself, not the unexpected loss contribution (ULCᵢ).