Question: Please show work for rating. A bank has made a 3-year, $20 million dollar loan that pays annual interest of 9%. The principal is due

Please show work for rating.

A bank has made a 3-year, $20 million dollar loan that pays annual interest of 9%.
The principal is due at the end of the third year.

The bank is willing to sell the loan with recourse at a 9.5% discount rate.

What should the bank receive for this loan?

** Hint: the value of any asset today is the present value of all future cash flows that asset is expected to produce

The bank has the option to sell this loan without recourse at a discount rate of 9.75%.

What should the bank receive for this loan?

If the bank expects a 0.75% probability of default on this loan over its three year life, is it preferable for the bank to sell the loan with our without recourse?

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