ABC Bank is charging a 10 percent interest rate on a $7,000,000 loan. The bank has a cost of funds of 6 percent. The borrower has a 4 percent chance of default, and if default occurs, the bank expects to recover 95 percent of the principal and interest. What is the expected return on the loan using the KMV model?

a). 0.20%
b). 5.80%
c). 4.00%
d). 3.80%
e). 5%

Answer rating: 100% (QA)

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