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A bank offers a loan to be repaid with a single payment after 10 years. The bank requires an annual interest rate of 3.5% compounded

  1. A bank offers a loan to be repaid with a single payment after 10 years. The bank requires an annual interest rate of 3.5% compounded continuously assuming no default. It is given that the percentage of borrowers that will default is 15%, and it is expected that the bank will be able to recover 38%. Find the annual interest rate compounded continuously that the bank should charge taking into account defaults and recoveries.

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