Question: ( a ) What do you understand by the probability of default? ( b ) Maseru Development Bank has R 8 5 0 million credit

(a) What do you understand by the probability of default?
(b) Maseru Development Bank has R850 million credit with Matsieng Hydroelectric Power, with a
maturity of eighteen months. The expected loss for Maseru Development Bank is R22 million,
and the recovery rate is assumed to be 23%. Calculate the probability of loan default by
Matsieng Hydroelectric Power.

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