A tourist company is borrowing money from FundingParner to purchase a yacht to use in expeditions with customers. The purchase price of the boat is NOK 5 million, and the acquisition will be financed 80% with debt. The loan will be secured by 1st priority pledge in the boat. The tenor of the loan will be 5 years, but the loan will have a 10-year repayment profile such that 400 000 of the loan will be repaid each year. The yacht depreciates by 10% each year.

a) Based on this information, construct the balance sheet for the company after the purchase. Assume that the yacht will be the companys only asset. Hint: Assets = Liabilities + Equity.

b) In a default scenario, it is expected that the yacht would be sold at a discount of 50% due to forced sale. How much would the lenders expect to lose each year in a default scenario?

c) Calculate the Expected Loss each year until maturity (year 0-5). Set Probability of Default to 10%.

d) Based on the average of the Expected Loss calculated above, what would you suggest the interest rate to be on the loan?