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10 The AXY Bank is to grant $1,000,000 and $4,000,000 loans to firm A and firm B, respectively. The AXY bank is planning on charging
10 The AXY Bank is to grant $1,000,000 and $4,000,000 loans to firm A and firm B, respectively. The AXY bank is planning on charging 15 percent interest rate and $50,000 in fees on the loan for firm A. The firm A has a 20 percent chance of default, and if default occurs, the bank expects to recover 60 percent of the principal and interest. The AXY bank is planning on charging 10 percent interest rate and $80,000 in fees on the loan for firm B. The firm B has a 5 percent chance of default, and if default occurs, the bank expects to recover 80 percent of the principal and interest. The AXY Bank's cost of funds is 6 percent. Q) What is the expected return of the AXY Bank's loan portfolio using the Moody's Analytics model? [round the decimal points to the nearest 100th)
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