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21. Imagine you are a bank loan officer. You are asked to make a one-year loan to Student Corp. The risk-free interest rate is 10%.

21. Imagine you are a bank loan officer. You are asked to make a one-year loan to Student Corp. The risk-free interest rate is 10%. You estimate that this firms default probability is 6% per year. Assume that the loans potential recovery rate is zero. What is the minimum interest rate you would charge on this loan?

a) 17percent

b) 16.6percent

c) 13.7 percent

d) 10.0percent

e) 6.0percent

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