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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. Question-4 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 short-sell $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