To find the expected loss (EL) in dollar terms, we use the formula:

$\text{EL} = \text{EAD} \times \text{PD}_{\text{term}} \times \text{LGD}$

Given that the one-year probability of default (PD) acts as an annualized rate (hazard rate), we must adjust it for the remaining term of the loan. Assuming a discrete approximation as stated in the question:

$\text{PD}_{\text{term}} \approx \text{PD}_{\text{1-year}} \times \left(\frac{\text{Term in months}}{12}\right)$

Calculating the EL for each loan:

• Loan (a): $PD_{term} = 4.00\% \times (3 / 12) = 1.00\%$ EL = \`100.00 \times 1.00\% \times 90.0\% = \$0.90` \text{ million}$

• Loan (b): $PD_{term} = 3.00\% \times (6 / 12) = 1.50\%$ EL = \`120.00 \times 1.50\% \times 60.0\% = \$1.08` \text{ million}$

• Loan (c): $PD_{term} = 2.00\% \times (9 / 12) = 1.50\%$ EL = \`150.00 \times 1.50\% \times 60.0\% = \$1.35` \text{ million}$

• Loan (d): $PD_{term} = 1.00\% \times (12 / 12) = 1.00\%$ EL = \`200.00 \times 1.00\% \times 50.0\% = \$1.00` \text{ million}$

Loan (c) has the highest expected loss in dollar terms at $1.35 million. Thus, the correct option is C.