Consider a $100,000 loan balance (EAD) Suppose a Borrower is in class 5 with a Probability of Default (PD) of 0.04 % and a loan with loan characteristics (LGD) of 50%. Given the credit risk scoring matrix presented in class, what is the expected loss rate and amount for this loan [dollar amount]?

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Loanable Funds Theory

The loanable funds theory is a neoclassical theory that determines the interest rate where the demand for loanable investments and supply of loanable funds intersect. To determine the interest rate, this theory employs linear regression and a demand curve. At the equilibrium point, demand for borrowings and demand for the issuance of borrowing funds are inextricably linked. This point of equilibrium should equalize demand and the supply of money available for borrowing.