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  1. business
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  3. consider two local banks. bank a has 83 loans outs

Consider two local banks. Bank A has 83 loans outstanding, each for $1.0 million, that...

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Consider two local banks. Bank A has 83 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 3% probability of default, in which case the bank is not repaid anything. The chance of default is independent across all the loans. Bank B has only one loan of $83 million outstanding, which it also expects will be repaid today. It also has a 3% probability of not being repaid. Which bank faces less risk? Why? (Select the best choice below.) A. The expected payoff is higher for Bank A, but is riskier. I prefer Bank B. B. The expected payoffs are the same, but Bank A is less risky. I prefer Bank A. C. The expected payoffs are the same, but Bank A is riskier. I prefer Bank B. D. In both cases, the expected loan payoff is the same: $83 million 0.97=$80.5 million. Consequently, I don't care which bank I own

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