Question: If the expected default rate on a 1-year personal loan card is 6.5% and the risk free rate is 3%, what risk premium must a

If the expected default rate on a 1-year personal loan card is 6.5% and the risk free rate is 3%, what risk premium must a financial institution charge on the credit card in order to have an expected return equal to the risk free rate? (Assume the financial institution assumes a 0% recovery rate in the event of default.) b. If the expected default rate on a 1-year automobile loan is 3.25%, the risk free rate is 3%, and the financial institution expects to recover 40% of the total loan return in the event of default, what risk premium must a financial institution charge on the automobile loan in order to have an expected return equal to the risk free rate?

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