Calculate Expected Loss On A Term Loan

Estimate expected loss for a fully funded $5 million term loan with 3.2 percent PD and 38 percent LGD, then identify the main sensitivity. Expected Loss = PD x LGD x EAD The common trap is treating expected loss as a generic risk label or changing multiple drivers with the same fact. The formula is simple; the discipline is mapping each fact to the right driver. Step 1 Set EAD at $5,000,000 because the term loan is fully funded at the measurement date. A term loan usually has clearer exposure than a revolving line. If this were an undrawn commitment,…

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