The expected loss (EL) on a credit instrument is calculated by multiplying the probability of default (PD), the loss given default (LGD), and the exposure at default (EAD). This formula captures the risk of default and the potential loss severity.
Other options (B, C, D) incorrectly represent the relationship between these components.
[References:, How Finance Works: "Expected Loss = Probability of Default x Loss Given Default x Exposure at Default", ]
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