UNIVERSITY OF ILLINOIS College of Business Finance 461 Financial Intermediaries George Pennacchi November 17, 2004

Study Questions for First Ameri !n B!n"# Credit $ef!ult S%!&s C!se (To be covered in class on onda! November 2"# 1$ %hat are the str&ct&re and timing o' the cash'lo(s that (o&ld be made bet(een First )merican *an+ (F)*# and ,harles *an+ International (,*I# i' the! agreed on a credit de'a&lt s(a- to s&--ort the t(o.!ear /00 million loan that ,*I is ho-ing to ma+e to ,a-12 3nlimited (,13#4 (revie( ,lass Note 10 -$".11#$

2$ 3se the o-tion -ricing a--roach to 'irm de'a&lt ris+ (revie( ,lass Note 14 -$11.21# to calc&late the ,135s e2-ected de'a&lt 're6&enc! (17F# d&ring the ne2t 'ive !ears$ (Five !ears is the average mat&rit! o' ,135s debt$#

8$ *ased on this 'ive.!ear 17F, F)*5s e2-ected losses i' the loan de'a&lts, and mar+et interest rates, (hat sho&ld be the -eriodic 'ee (-aid ever! si2 months# that ,*I -a!s to F)* 'or the credit de'a&lt s(a-4

4$ 9ho&ld F)* hold on to the credit ris+ o' ,134 %hat (o&ld be the best (a! 'or ,hris :ittal to trans'er this ris+ 'rom F)*5s balance sheet4