Question: A single 3 3 m loan earns 2 . 3 % p . a . in fees, the loan's yield is 1 3 % and

A single 33m loan earns 2.3% p.a. in fees, the loan's yield is 13% and the firm's cost of funds is 8.75%. Because of collateral consideration, the loss to the FI if the borrower defaults will be 33% of the loans face value. The expected probability of default is 3.3%. What is the expected return and the risk on the loan?

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