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The interest rate that Anderson Bank wants to receive on a five year loan in order to deferred consumption is an annual rate of 5%
The interest rate that Anderson Bank wants to receive on a five year loan in order to deferred consumption is an annual rate of 5% compounded continuously. For five year loans, the percentage of loans that will default is 0.9%. For the loans where there are defaults, Anderson Bank will be able to recover 45% of the amount owed after five years.
Calculate the credit spread calculated as an annual rate compounded continuously that Anderson Bank needs to charge.
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