(v) Calculate the expected shortfall relative to the loan repayment. from part iv) The Probability that investor will be able to repay loan is 0.1985. Hence shortfall probability i.e. P(Value of portfolio @t=2 < 15000) = 1 - 0.1985 = 0.8015 Conditional shortfall = E(shortfall) / P(shortfall) E(shortfall) = summation Probability*max(15000 - value of portfolio @t=2 ,0) = 2962.4 Hence conditional shortfall = 2962.4/0.8015 = 3696.07 Doubt: The answer given in the solution excel file ( worksheet v, cell L11) available from the past papers section IFoA, is 14924 E(shortfall) / 0.1985 = 2692.4 / 0.1985 = 14924, where 0.1985 is P(repaying loan) = 1-P(shortfall). Wrong figure for probability of shortfall is considered here? Thanks in advance!