1) What is the lending rate for a customer with a probability of default of 1% and a loss given default of 28%. The funding rate is 6.3% and the VaR for the loan is 13 cents on the dollar. The bank benchmark is a 9.6% return on equity. Enter your answer as a decimal with four digits of precision.
2) A customer defaults on a $28.2 million. The financial institution recovers $18.4 million, 20.5% of which is absorbed by administrative costs. The recovery process takes 2.6 years. The average discount rate over this period was 9%. What is the recovery rate on this defaulted loan. enter your answer as a decimal with four places of precision (i.e. 0.1234).
3) The expected loss rate for a customer is .40%, the 99% confidence interval VaR is 5 cents per dollar, the bank's cost of funding is 5.5%, and the cost of bank equity capital is 11%. Enter your answers as decimals with four places of precision.
What is the cost of expected losses?
What is the cost of unexpected losses?
What is the loan rate to customers?