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The Treasury rate is 3%. Olivia has a probability of default of 3.6%. If she were to default on this one year loan the LGD
The Treasury rate is 3%. Olivia has a probability of default of 3.6%. If she were to default on this one year loan the LGD would be 35%. What is the appropriate contract rate on Olivia's loan?
please explain. The answer is 3.38% but I would like to know the process.
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