Consider two local banks. Bank A has 78 loans outstanding, each for $1.0 million, that it expects will be repaid today. Each loan has a 5% 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 $78 million outstanding, which it also expects will be repaid today. It also has a 5% probability of not being repaid. Calculate the following:
a. The expected overall payoff of each bank.
b. The standard deviation of the overall payoff of each bank.
a. The expected overall payoff of each bank. The expected overall payoff of Bank A is $ 74 million. (Round to the nearest integer.) The expected overall payoff of Bank B is $ 74.1 million. (Round to the nearest integer.)
b. The standard deviation of the overall payoff of each bank.
The standard deviation of the overall payoff of Bank A is
. (Round to two decimal places.)
