9. Bank ABC offers six-year loans where the principal and interest are repaid at end of the term. Bank ABC wants to earn an annual continuous compounded interest rate of 8% on the loans for deferred consumption. For this loan, the probability that borrowers default is 2%. Unfortunately, for defaulted loans, Bank ABC is unable recover any of the repayment amount. Assuming there is no inflation, what is the rate charged by ABC to compensate for default risk? A)0.0015 B)0.0026 C)0.0034 D)0.0049 E)0.0055

9. Bank ABC offers six-year loans where the principal and interest are repaid at end of the term. Bank ABC wants to earn an annual continuous compounded interest rate of 8% on the loans for deferred consumption. For this loan, the probability that borrowers default is 2%. Unfortunately, for defaulted loans, Bank ABC is unable recover any of the repayment amount. Assuming there is no inflation, what is the rate charged by ABC to compensate for default risk? A)0.0015 B)0.0026 C)0.0034 D)0.0049 E)0.0055

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter19: Lease And Intermediate-term Financing

Section: Chapter Questions

Problem 14P

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