Question: If the expected default rate on a particular mortgage-backed security is 4 percent per year, and the corresponding Treasury security carries a 3 percent annual

If the expected default rate on a particular mortgage-backed security is 4 percent per year, and the corresponding Treasury security carries a 3 percent annual interest rate, what should be the interest rate on the mortgage-backed security? What happens if the expected default rate rises to 8 percent?

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