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Suppose Thomson Bank is a risk-neutral lender. It offered a one-year loan on which the probability of default is 0.08 and the recover rate in

Suppose Thomson Bank is a risk-neutral lender. It offered a one-year loan on which the probability of default is 0.08 and the recover rate in the event of default is believed to be 80%. The riskless rate is 6%/year.

What would be the break-even (or lowest) risk-adjusted interest rate Thomson Bank would accept on this loan from a customer?

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