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I ask you to lend me $500 and assume that the probability of receiving full payment, at riskless rate of 3%, of $515 is 97%,
I ask you to lend me $500 and assume that the probability of receiving full payment, at riskless rate of 3%, of $515 is 97%, the probability of receiving $100 is 2%, and the probability of receiving zero payment is 1%. If the bond quotes a rate of return of 11%, what is the risk premium?
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