Question
Base rate 4.5% Credit risk premium 3% Origination fees 0.35% Compensating balance 6.5% Reserve requirement 10% Probability of payment 97.5% Expected recovery in event of
| Base rate | 4.5% |
| Credit risk premium | 3% |
| Origination fees | 0.35% |
| Compensating balance | 6.5% |
| Reserve requirement | 10% |
| Probability of payment | 97.5% |
| Expected recovery in event of default | 35% |
3a. What is the expected return on the loan from question 1 if the lender expects no recovery if the loan defaults?
b. What is the expected return on the loan from part a of this question if the probability of payment is 2.5% lower?
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Governing The Modern Corporation Capital Markets Corporate Control And Economic Performance
Authors: Roy C. Smith, Ingo Walter
1st Edition
0195171675,0199924015
