When looking at the distribution of portfolio credit losses, the shape of the loss distribution is ___ , as the likelihood of total losses, the sum of expected and unexpected credit losses, is ___ than the likelihood of no credit losses.
A. Symmetric; less
B. Symmetric; greater
C. Asymmetric; less
D. Asymmetric; greater
ThetaBank has extended substantial financing to two mortgage companies, which these mortgage lenders use to finance their own lending. Individually, each of the mortgage companies have an exposure at default (EAD) of $20 million, with a loss given default (LGD) of 100%, and a probability of default of 10%. ThetaBank's risk department predicts the joint probability of default at 5%. If the default risk of these mortgage companies were modeled as independent risks, the actual probability would be underestimated by:
A. 1%
B. 2%
C. 3%
D. 4%
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