Assume That the Maximum Loss as a Percentage of Capital

Multiple Choice

Assume that the maximum loss as a percentage of capital is 9% of an FI's capital to a particular sector and that the amount recovered per dollar of defaulted loans in this sector is 70%.What is the concentration limit (round to two decimals) ?

A) 9% * (1/0.7) = 12.86%
B) 9% * [1/(1-0.7) ] = 30.00%
C) 70% / (1/0.09) = 6.30%
D) (100% - 70%) / (1/0.09) = 2.70%