Bank Sigma has an opportunity to do a securitization deal for a credit card company, but has to retain a portion
of the residual risk of the deal with an estimated VaR of $8 MM. Its fees for the deal are $2 MM, and the
short-term financing costs are $600,000. What would be the RAROC for this transaction?

A credit associate extending a loan to an obligor suspects that the obligor may change his behavior after the
loan has been originated. The obligor in this case may use the loan proceeds for purposes not sanctioned by the
lender, thereby increasing the risk of default. Hence, the credit associate must estimate the probability of
default based on the assumptions about the applicability of the following tendency to this lending situation:

Which of the following attributes are typical for early models of statistical credit analysis?

Alpha Bank determined that Delta Industrial Machinery Corporation has 2% change of default on a one-year
no-payment of USD $1 million, including interest and principal repayment. The bank charges 3% interest rate
spread to firms in the machinery industry, and the risk-free interest rate is 6%. Alpha Bank receives both
interest and principal payments once at the end the year. Delta can only default at the end of the year. If Delta
defaults, the bank expects to lose 50% of its promised payment. What interest rate should Alpha Bank charge
on the no-payment loan to Delta Industrial Machinery Corporation?

For two variables, which of the following is equal to the average product of the deviations from their
respective means?