Consider an FI That Holds Two Loans with the Following

Multiple Choice

Consider an FI that holds two loans with the following characteristics: $$\begin{array} { | c | c | c | c | c | c | c | c | } \hline \text { Loan i } & \text { Weight I } & \begin{array} { c } \text { Annual } \\\text { loan rate }\end{array} & \begin{array} { c } \text { Annual Fl's cost of } \\\text { funds }\end{array} & \text { Annual fees } & \begin{array} { c } \text { Loss to Fl given } \\\text { default }\end{array} & \begin{array} { c } \text { Expected default } \\\text { frequency }\end{array} & \\\hline 1 & 0.30 & 10.0 \% & 4.5 \% & 2.0 \% & 25 \% & 4 \% & P _ { 12 } = - 0.25 \\\hline 2 & 0.70 & 11.0 \% & 5.0 \% & 1.5 \% & 20 \% & 3 \% & \\\hline\end{array}$$ What is the return on the loan portfolio (round to two decimals) ?

A) 6.50%
B) 6.90%
C) 13.40%
D) 6.78%