A Malaysian bank approved an AUD20,000 five- year loan to Sarah two…A Malaysian bank approved an AUD20,000 five- year loan to Sarah two years ago, which charges an interest pf 3% p.a. and requires annual repayments of the principal plus interest. According to the bank’s internal rating model, Sarah has a total 10% chance of defaulting over the next two years (5% for each year). In case that happens, the estimated recovery rate is 20% and the expected EAD at that time would be 90% of the starting balance.The expected loss (in dollars) for the bank if Sarah defaults at the beginning of next year is closest to:Select one:A. $123.53B. $444.70 C. $889.4D. $494.11BusinessFinanceBFW 3841
