Explanation:
estimated loss<sub>Capen Bank</sub> = $3.8 \text{ million} \times \left( \dfrac{`435` \text{ million}}{\`625` \text{ million}} \right)^{0.23}$
= $3,496,0993.50`$ million
(Book 4, Module 53.2, LO 53.e)
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Question 20
Capen Bank generated $435 million in revenue in the previous fiscal year. A senior risk analyst at Capen would like to estimate potential losses for the bank, given what he has observed from similar banks. Although it is somewhat larger in size, Lannon Bank, with an observed loss of $3.8 million along with $625 million in revenue, serves as a reasonable comparison. Using Lannon's results as a baseline for a scale adjustment, and assuming a beta coefficient of 0.23, the analyst should estimate a loss for Capen closest to:
A
$2.64 million.
B
$2.87 million.
C
$3.50 million.
D
$4.13 million.
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