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Explain the difference between the type of risk

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Can you help me answer the question below with a full explanation? There are a few answers available but they contradict with each other (some say A is less risky and other say B is less risky) and do not come with a proper explanation. Thanks!

Consider two local banks. Bank A has 100 loans outstanding, each for $1 million, that it expects will be repaid today. Each loan has a 5% probability of default, in which case the bank is not repaid anything. The chance of default is independent across all the loans. Bank B has only one loan of $100 million outstanding, which it also expects will be repaid today. It also has a 5% probability of not being repaid. Explain the difference between the type of risk each bank faces. Which bank faces less risk? Why?

Reference no: EM132384018

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