Which equation expresses the relationship between EPL and D-ratio?

Which equation expresses the relationship between EPL and D-ratio?

• A. EPL = actual losses x D-ratio
• B. EPL = expected losses x D-ratio
• C. D-ratio = EPL / expected losses
• D. D-ratio = actual losses / EPL

Answer: (B)

The main idea is that the EPL is obtained by scaling the baseline of expected losses with the D-ratio. The D-ratio acts as a multiplier that adjusts what you expect to lose to arrive at the projected or estimated losses (EPL). So the direct relationship is EPL = expected losses × D-ratio. For example, if the expected losses are 100 and the D-ratio is 1.25, the EPL would be 125. Using actual losses rather than expected losses would misstate the baseline, and while you could rearrange the equation to D-ratio = EPL / expected losses, that form is just an algebraic rewrite, not the standard way the relationship is defined.

The main idea is that the EPL is obtained by scaling the baseline of expected losses with the D-ratio. The D-ratio acts as a multiplier that adjusts what you expect to lose to arrive at the projected or estimated losses (EPL). So the direct relationship is EPL = expected losses × D-ratio. For example, if the expected losses are 100 and the D-ratio is 1.25, the EPL would be 125. Using actual losses rather than expected losses would misstate the baseline, and while you could rearrange the equation to D-ratio = EPL / expected losses, that form is just an algebraic rewrite, not the standard way the relationship is defined.