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Assume a bank is in the process of considering restructuring a $4 million loan. The original loan is due in 1 year, pays an interest
Assume a bank is in the process of considering restructuring a $4 million loan. The original loan is due in 1 year, pays an interest rate of 7% and the cost of funds is also 7%. For this loan there is a 10% chance of no recovery on default, 20% chance of $2 million recovery, and 70% chance the loan pays as planned.
- What is the present value of the existing loan?
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