I am currently looking for the steps to solve questions 25, 31, and 38 in chapter 10 of financial institutions management a risk management approach 9th edition

25) If the rate on 1year t-bills currently is 6%, what is the repayment probability for each of the following two securities? Assume that is the loan is defaulted, no payments are expected. What is the market-determined risk premium for the corresponding probability of default for each security?

a. One-year AA-rated bond yeilding 9.5%

b. One-year BB-rated bond yeilding 13.5%

31) Calculate the term structure of default probabilities over three years using the following spot reates from the treasury strip and corporate bond (pure discount) yeild curves. Be sure to calculate both the annual marginal and the cumulative default probabilities.

Spot 1 year Spot 2 year Spot 3 year

Treasury Strips 5.0% 6.1% 7.0%

BBB-rated bonds 7.0% 8.2% 9.3%

38) A bank is planning to make a loan of $5,000,000 to a firm in the steel industry. It expects to charge a serving fee of 50 basis points. The loan has a maturity of 8 years with a duration of 7.5 years. The cost of funds (the RAROC benchmark) for the bank is 10%. The bank has estimated the maximum change in the risk premium on the steel manufacturing sector to be approximately 4.2%, based on two years of historical data. The current market interest rate for loans in this sector is 12%.

a. Using the RAROC model, determine whether the bank should make the loan?

b. What should be the duration in order for thius loan to be approved?

c. Assuming that duration cannot be changed, how much additional interest and fee income will be necessary to make the loan acceptable?

d. Given the proposed income stream and the negotiated duration, what adjustment in the loan rate would be necessary to make the loan acceptable?

Thank you for any help.