The current on-year risk free rate is 6%.

The rate charged on a one-year, $5,000,000 loan to XYZ Corp. is 10%. The bank estimates that in the event of default it can recover 80% of what it is owed.

Based on this information, what is the banks estimate of the probability that XYZ Corp. will default?____ %

If the bank changes its estimate of the probability of default so that it is 85% of what it was when it set the rate of 10%, what rate should it charge on the loan?____%