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8. The contractually-promised return on a 1 -year loan is 15% per annum. If the borrower defaults, 90% of the principal and interest payments are

8. The contractually-promised return on a 1 -year loan is 15% per annum. If the borrower defaults, 90% of the principal and interest payments are expected to be recovered. If the borrower is expected to default with a 20% probability, what is the expected rate of return on this loan? A. 15% B. 12.7% C. 12% D. 5.8% E. 8% Answer: B

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