Question: A bank has made a loan charging a base lending rate of 10 percent. It expects a probability of default of 5 percent. If the

A bank has made a loan charging a base lending rate of 10 percent. It expects a probability of default of 5 percent. If the loan is defaulted, the bank expects to recover 50 percent of its money through the sale of its collateral. What is the expected return on this loan?

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