Explanation

To calculate the standard deviation of loss from a loan portfolio, we typically use the formula for portfolio risk that accounts for default probabilities, loss given default, and correlations between loans.

Given that the question asks for the standard deviation as a percentage of portfolio size, and the options range from 1.52% to 5.59%, the correct answer of 4.16% (option C) suggests:

• This represents the portfolio's unexpected loss
• It accounts for diversification effects across multiple loans
• The calculation likely incorporates default correlations between borrowers
• For a well-diversified portfolio, the standard deviation is typically lower than that of individual loans due to correlation effects

The exact calculation would require:

• Individual loan default probabilities
• Loss given default values
• Correlation matrix between loans
• Portfolio weights

However, based on the options provided and typical portfolio risk calculations, 4.16% represents a reasonable standard deviation for a diversified loan portfolio.