A firm is issuing a two-year loan in the amount of $2 million. The current market value of the borrowers assets is $3 million. The risk-free rate is 4 percent and the standard deviation of the rate of change in the underlying assets of the borrower is 20 percent. Using an options-based framework, determine the following:

a. The current market value of the loan.

b. The risky interest rate to be charged on the loan.