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Loss Given Default Formula

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Loss Given Default (LGD) is a financial metric used in credit risk analysis to measure the expected loss incurred by a lender in the event of a borrower's default on a loan or other credit obligation. Check FAQs

LGD = 1 - Rr

LGD - Loss Given Default?Rr - Recovery Rate?

Loss Given Default Example

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With units

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Here is how the Loss Given Default equation looks like with Values.

Here is how the Loss Given Default equation looks like with Units.

Here is how the Loss Given Default equation looks like.

0.6 = 1 - 0.4

0.6 = 1 - 0.4

0.6 = 1 - 0.4

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Loss Given Default Solution

Follow our step by step solution on how to calculate Loss Given Default?

FIRST Step Consider the formula

LGD = 1 - Rr

Next Step Substitute values of Variables

∴

LGD = 1 - 0.4

Next Step Prepare to Evaluate

∴

LGD = 1 - 0.4

LAST Step Evaluate

∴

LGD = 0.6

Loss Given Default Formula Elements

Variables

Loss Given Default

Symbol: LGD

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Loss Given Default

Recovery Rate

Recovery Rate refers to the percentage of an outstanding loan or credit exposure that a lender is able to recover in the event of default by the borrower.

Symbol: Rr

Measurement: NAUnit: Unitless

Note: Value should be greater than 0.

Formulas to find Recovery Rate

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How to Evaluate Loss Given Default?

Loss Given Default evaluator uses Loss Given Default = 1-Recovery Rate to evaluate the Loss Given Default, Loss Given Default (LGD) is a financial metric used in credit risk analysis to measure the expected loss incurred by a lender in the event of a borrower's default on a loan or other credit obligation. Loss Given Default is denoted by LGD symbol.

How to evaluate Loss Given Default using this online evaluator? To use this online evaluator for Loss Given Default, enter Recovery Rate (Rr) and hit the calculate button.

FAQs on Loss Given Default

What is the formula to find Loss Given Default?

The formula of Loss Given Default is expressed as Loss Given Default = 1-Recovery Rate. Here is an example- 0.6 = 1-0.4.

How to calculate Loss Given Default?

With Recovery Rate (Rr) we can find Loss Given Default using the formula - Loss Given Default = 1-Recovery Rate.

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