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Anderson Bank offers a five-year loan. It is repaid with a single payment of principal and interest at time five. Anderson wants to receive an
Anderson Bank offers a five-year loan. It is repaid with a single payment of principal and interest at time five. Anderson wants to receive an annual rate of 5% compounded continuously to reflect deferred compensation. For-this loan, the percentage of borrowers that will default is 0.7%. For the loans where there are defaults, Anderson Bank will be able to recover 30% of the amount owed after five years. Let ? be the credit spread calculated as an annual rate compounded continuously that Anderson Bank needs to charge. Calculate 10008 A. 0.68 B. 0.78 C. 0.88 D. 0.98 E. .08 Anderson Bank offers a five-year loan. It is repaid with a single payment of principal and interest at time five. Anderson wants to receive an annual rate of 5% compounded continuously to reflect deferred compensation. For-this loan, the percentage of borrowers that will default is 0.7%. For the loans where there are defaults, Anderson Bank will be able to recover 30% of the amount owed after five years. Let ? be the credit spread calculated as an annual rate compounded continuously that Anderson Bank needs to charge. Calculate 10008 A. 0.68 B. 0.78 C. 0.88 D. 0.98 E. .08
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