A bank receives a loan application from a company to develop a shopping center. The company has a credit rating of BB+ its bonds are traded at 8.2%. whereas the Govemment Bonds' rate is currently 4.4%. These rates are for a 1-year period. Questions: 1. Calculate the probability of repayment for that loan. 2. Calculate the risk premium if you assume that the recovery rate in the event of default is 60 per cent. 3. Suppose that the company requested a loan for two years. Government bond rate for 2 years is 5% and company bond rate for 2 years is 9.6%. Calculate the cumulative probability of default (use the geometric method to calculate the forward interest rates). 4. If the lending institution fixes the maximum acceptable cumulative probability of default as 2%, is it risky to grant the loan to the company? A bank receives a loan application from a company to develop a shopping center. The company has a credit rating of BB+ its bonds are traded at 8.2%. whereas the Govemment Bonds' rate is currently 4.4%. These rates are for a 1-year period. Questions: 1. Calculate the probability of repayment for that loan. 2. Calculate the risk premium if you assume that the recovery rate in the event of default is 60 per cent. 3. Suppose that the company requested a loan for two years. Government bond rate for 2 years is 5% and company bond rate for 2 years is 9.6%. Calculate the cumulative probability of default (use the geometric method to calculate the forward interest rates). 4. If the lending institution fixes the maximum acceptable cumulative probability of default as 2%, is it risky to grant the loan to the company