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Q14) CountrySide Bank uses Moody's Analytics Portfolio Manager to evaluate the risk-return characteristics of the...

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Q14) CountrySide Bank uses Moody's Analytics Portfolio Manager to evaluate the risk-return characteristics of the loans in its portfolio. A specific $10 million loan earns 2 percent per year in fees, and the loan is priced at a 4 percent spread over the cost of funds for the bank. Because of collateral considerations, the loss to the bank if the borrower defaults will be 30 percent of the loan's face value. The expected probability of default is 5 percent. What is the anticipated return on this loan? What is the risk of the loan

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