An A$-$rated corporate loan with a maturity of $3$ years. A$-$rated corporate loans are

evaluated using the mortality rate approach. A schedule of historical defaults $($annually

and cumulative$)$ experienced by the bank on its A$-$rated corporate loans is as follows:

A $$2$ million, $5-$year loan to a BBB$-$rated corporation in the computer parts industry. MC

Bancorp charges a servicing fee of $75$ basis points. The duration on the loan is $4\mathrm{.}2$ years.

The cost of funds for the bank is $8$ percent. Based on $4$ years of historical data, the bank

has estimated the maximum change in the risk premium on the computer parts industry to

be approximately $6\mathrm{.}5$ percent. The current market rate for loans in this industry is $10$

percent.