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      Question

      What core metric represents the net percentage or

      economic loss a bank stands to suffer if an asset goes into default?
      A Probability of Default (PD) Correct Answer Incorrect Answer
      B Loss Given Default (LGD) Correct Answer Incorrect Answer
      C Exposure at Default (EAD) Correct Answer Incorrect Answer
      D Effective Interest Rate (EIR) Correct Answer Incorrect Answer
      E Yield to Maturity (YTM) Correct Answer Incorrect Answer

      Solution

      Loss Given Default (LGD) measures the actual proportion of the loan exposure that cannot be recovered following a borrower default.

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