Suppose Thomson Bank is a risk-neutral lender. It offered a one-year loan on which the probability of
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Question:
Suppose Thomson Bank is a risk-neutral lender. It offered a one-year loan on which the probability of default is 0.08 and the recover rate in the event of default is believed to be 80%. The riskless rate is 6%/year.
What would be the break-even (or lowest) risk-adjusted interest rate Thomson Bank would accept on this loan from a customer?
Related Book For
Fundamentals of Corporate Finance
ISBN: 978-1260153590
12th edition
Authors: Stephen M. Ross, Randolph W Westerfield, Robert R. Dockson, Bradford D Jordan
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