Q 10.35. An entrepreneur is quoted a loan rate of 12% at the local bank, while the bank pays depositors 6% per annum. 1. If in bankruptcy the entrepreneur will not pay back anything, but otherwise everything will be repaid, then what does the bank believe the probability of failure to be? 2. What is the quoted default premium? 3. Compute the expected default premium. (Note that when you lose all your money plus the de- fault premium, your rate of return can be below -100%. This is not only reasonable but neces- sary to get an average default premium that is what it should be.)