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What is the expected recovery rate on the loan

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Reference no: EM132976014

Question - Antonio asks for a one-year loan at a bank when the one-year Treasury rate is 2%. Answer the following questions about his application. (Show your work for full credit.)

a. If the loan is an unsecured vacation loan carrying an interest rate of 4.21%, what probability of default does the bank use when pricing Antonio's loan?

b. If the loan were secured and carried an interest rate of 2.91% and had the same probability of default as in part a, what is the expected recovery rate on the loan?

Reference no: EM132976014

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