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Question: loan type 1 year 2 years 3 years 4 years...

Question details
Loan Type 1 year 2 years 3 years 4 years 5 years
Commercial:
     Annual default 0.00%    _____ 0.50% _____ 0.30%
     Cumulative default    ____ 0.10% _____ 0.80%    _____
Mortgage:
     Annual default 0.10% 0.25% 0.60% ______ 0.80%
     Cumulative default _____ _______ _____ 1.64% _____

The following is a schedule of historical defaults (yearly and cumulative) experienced by an FI manager on a portfolio of commercial and mortgage loans.

a. Complete the blank spaces in the table.

b. What are the probabilities that each type of loan will not be in default after five years?

c. What is the measured difference between the cumulative default (mortality) rates for commercial and mortgage loans after four years?

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