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Information and IdeasVery hardReading a table of loan default rates

Information and Ideas practice question

Small-business loans issued by a bank, by loan size, 2020 cohort Loan size | Loans issued | Defaulted within 3 years Under $25,000 | 4,000 | 320 $25,000 to $100,000 | 2,500 | 150 Over $100,000 | 500 | 20 An analyst argues that the bank's smallest loans are its riskiest, even though they account for the most defaults in absolute terms only because there are so many of them; she supports the point about risk by noting that ____

Which choice most effectively uses data from the table to complete the statement?

  1. A. 8% of loans under $25,000 defaulted, compared with 6% of mid-sized loans and 4% of loans over $100,000.Correct
  2. B. 320 loans under $25,000 defaulted, more than in any other size group.
  3. C. the bank issued 4,000 loans under $25,000.
  4. D. only 20 loans over $100,000 defaulted.

Answer: A. 8% of loans under $25,000 defaulted, compared with 6% of mid-sized loans and 4% of loans over $100,000.

Risk is a rate; the rates fall with size.

Why the other answers are wrong

B. 320 loans under $25,000 defaulted, more than in any other size group.
The absolute count the analyst set aside.
C. the bank issued 4,000 loans under $25,000.
Volume, not risk.
D. only 20 loans over $100,000 defaulted.
A count, not a rate.

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