Question

How is Loss Given Default (LG

  • D calculated, and how does it typically vary between secured and unsecured loans?
A LGD = Recovery Rate – 1; LGD is 80-100% for secured loans and 20-30% for unsecured loans.
B LGD = 1 - Recovery Rate; LGD can be 20-30% for secured loans with strong collateral and 80-100% for unsecured loans.
C LGD = Drawn Amount + (CCF *Undrawn Limit); LGD is fixed at 50% for all loan types.
D LGD = 1 + Recovery Rate; LGD approaches 0% for unsecured loans.
E LGD = {Outstanding Principal} / {Total Assets}; LGD is unaffected by collateral strength.
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