8. You have observed that over the past 10 years commercial borrower 1 has had an expected cash flow of $1 million on a monthly basis with a volatility of $250,000. Borrower 2 has an expected cash flow of $2 million and a volatility of $500,000. You forecast that next year’s cash flow for borrower 1 is $550,000 and for borrower 2 is $1,300,000. You have a credit policy that an obligor’s projected cash‐flow must not breach the 95 percent confidence level, using 1.65 as the volatility factor. What is your conclusion about these two loans?
Solution ID:10137764 | Question answered on 16-Oct-2016
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