6.The interest rate that Anderson Bank wants to receive on a five year loan in order to deferred consumption is an annual rate of 5% compounded continuously. For five year loans, the percentage of loans that will default is 1.1%. For the loans where there are defaults, Anderson Bank will be able to recover 35% of the amount owed after five years.

Calculate the credit spread calculated as an annual rate compounded continuously that Anderson Bank needs to charge.

decimal and round to the nearest 5 decimal places

7.On ten year loans, Liu Loan Company wants to receive an annual rate of 4.5% compounded continuously before taking into account defaults. This is equivalent to the rate desired in order to defer consumption.

When taking into account expected defaults and recovery on those defaults, Liu charges an annual rate of 4.55% compounded continuously.

For these ten year loans, Liu believes that 1.2% of the loans will default. Further, Liu expects the loans which default will pay X% of the amount owed at the end of 10 years.

Determine X.