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4. (6 marks) A student loan of amount $10,000 is amortized over 20 years by contin- nous payment at 8%. The loan is subject to
4. (6 marks) A student loan of amount $10,000 is amortized over 20 years by contin- nous payment at 8%. The loan is subject to default at constant force of default of 1%. A government agency guarantees the outstanding balance of the loan in case of default Using force of interest of 5%, calculate the APV of the guarantee. HINT: Recall 2PM for loan payment calculation and outstanding balance. 4. (6 marks) A student loan of amount $10,000 is amortized over 20 years by contin- nous payment at 8%. The loan is subject to default at constant force of default of 1%. A government agency guarantees the outstanding balance of the loan in case of default Using force of interest of 5%, calculate the APV of the guarantee. HINT: Recall 2PM for loan payment calculation and outstanding balance
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