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Chapter Twelve

Credit Risk: Loan Portfolio and Concentration Risk

Chapter Outline

Simple Models of Loan Concentration
Loan Portfolio Diversification and Modern Portfolio Theory (MPT)
Solutions for End-of-Chapter Questions and Problems: Chapter Twelve

1. How do loan portfolio risks differ from individual loan risks?

Loan portfolio risks refer to the risks of a portfolio of loans as opposed to the risks of a single loan. Inherent in the distinction is the elimination of some of the risks of individual loans because of benefits from diversification.

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