Under the option view of the firm which of the

Under the option view of the firm, which of the following is TRUE?
A)
The firm will default on its obligations if the value of the firm exceeds the value of the
debt.
B)
The firm will default on its obligations if the value of the firm is less than the value of
the debt.
C)
The firm will default on its obligations if the value of its equity exceeds the value of
the debt.
D)
The firm will default on its obligations if the value of its equity is less than the value
of the debt.
2 、 Which of the following formulas for unexpected loss is CORRECT?
A)
.
B)
.
C)
.
D)
.
3 、 Unexpected loss will increase under which of the following circumstances?
A) Expected default frequency decreases.
B) Variance of default frequencies increases.
C) Usage given default decreases.
D) Adjusted exposure increases but default frequency decreases.
4 、 Which of the following statements about loan returns is (are) TRUE?
I. Unexpected loss on the loan can result from default.
II. Unexpected loss on the loan can result from credit migration.
III. Loan returns increase as recovery rates decrease.
A) I only.
B) II and III only.

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C) I and II only.
D) I, II, and III.
5 、 Unexpected loss is best characterized as:
A) variance of expected loss.
B) standard deviation of expected loss.
C) variance of unanticipated loss.
D) standard deviation of unanticipated loss.
6 、 Smallville Savings Bank (SSB) has a loan portfolio totaling $20,000,000 in commitments. Currently 60% is
outstanding. The bank has assessed an average internal credit rating equivalent to 2% default probability over the
next year. Drawdown upon default is assumed to be 75%. The bank has additionally estimated a LGD of 60%.
The standard deviation of EDF and LGD is 5% and 25%, respectively. The ratio of unexpected loss to expected
loss is closest to:
A) 4.0.
B) 2.0.
C) 0.50.
D) 0.25.
7 、 Which of the following statements about unexpected loss is TRUE?
A) Unexpected loss is a linear function of loss given default.
B) Unexpected loss is a non-linear function of loss given default.
C) Loss given default is a non-linear function of unexpected loss.
D) Loss given default is a linear function of unexpected loss.
8 、 John Clayburn is trying to parameterize a credit risk model for his employer, Syacmoor Bank. Based on a large
sample of loans, he has estimated a default frequency of 12%. John knows that this is a necessary input to
calculate the unexpected loss. Which of the following is closest to the standard deviation of Sycamoor’s default