Analyzing Loan Outcomes with Default Risk

Explaining the Effect of Repayment on Lender's Profit

Evaluating a Claim on Loan Profitability

A lender's actual profit from a loan is always determined by the principal amount and the interest rate specified in the loan contract, regardless of the borrower's repayment behavior.

A bank lends $5,000 to four different borrowers, with each agreeing to repay $5,500 in one year. Match each borrower's actual repayment amount to the bank's resulting profit or loss from that specific loan.

A bank lends $20,000 to a company. The loan agreement specifies a total repayment of $22,000. Due to financial difficulties, the company is unable to repay the full amount, and the bank records an actual loss of $5,000 on this loan. The company must have repaid a total of $____.

A bank lends $50,000 to a small business. The loan agreement requires a total repayment of $55,000. However, the business faces financial hardship and only repays $48,000. Arrange the following steps in the correct logical order to determine the bank's actual profit or loss on this loan.

A financial institution makes two separate loans of $20,000 each. For Loan A, the borrower agrees to repay $22,000 but ultimately repays only $19,000. For Loan B, the borrower agrees to repay $23,000 but ultimately repays $21,000. Based on this information, which statement accurately compares the outcomes of these two loans for the institution?

Analyzing Portfolio Profitability with Default