Using the repayment versus default diagrams illustrate how each of the following scenarios would affect the probability
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Using the repayment versus default diagrams illustrate how each of the following scenarios would affect the probability of default. Clearly label the repayment threshold, consumption with repayment, and consumption after nonrepayment and default. Indicate any shifts in these values on your diagrams.
a. An increase in the amount borrowed
b. A decrease in the volatility of output
c. An increase in the lending rate
d. An increase in the cost of default
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a The repayment probability decreases b The repaymen...View the full answer
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