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Unformatted text preview: which it expects will be repaid today. (If a loan defaults the bank does not get repaid anything for that loan).The loan has a 5% probability of not being repaid. Bank B has 100 loans outstanding each for $1 million that it also expects will be repaid today. Each loan has a 5% probability of default. The chance of default is independent across all the loans. Calculate the expected payment and the standard deviation of the total repayment for each bank. Question4 Mary has $20,000 in her bank account. She plans to borrow an additional $10,000 from the bank at the risk free rate of 3%. Mary also plans to shortsell $5,000 worth of Sony stocks and invest all (i.e., $35,000) in Samsung . Sony s expected return is 6% and its volatility (its standard deviation) is 50%. Samsung s expected return is 8% and its volatility (its standard deviation) is 40%. The covariance between Sony and Samsung is 18%. Calculate the expected return and the volatility of Marys portfolio....
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 Winter '08
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