Question
Guringai Bank has made a one-year loan to Hornsby Panelbeaters Ltd, a firm that manufactures toy blocks. The estimated probability of default of this loan
Guringai Bank has made a one-year loan to Hornsby Panelbeaters Ltd, a firm that\ manufactures toy blocks. The estimated probability of default of this loan is
9.4%
.\ The bank has also made a two-year loan to Hornsby Panelbeaters Ltd that provides\ a return of
13.3%
per annum if the loan is not defaulted. And the bank will lose all\ the claims on principal and interests upon loan default. The yield is
2%
per annum\ for the 1-year maturity government bond. Based on the prices of 1-year and 2-year\ maturity government bond prices, the forward rate for the 2 nd year is
4%
per\ annum.\ What is the cumulative probability of repayment (i.e. not default) of Hornsby\ Panelbeaters Ltd over the two years?\ (Please round your answer to at least 3 decimal places in decimal points, not\ percentage terms.)\ Answer:
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started