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Working as a credit officer, you are examining a loan application by a corporate customer of your bank. Based on your collected information on the
Working as a credit officer, you are examining a loan application by a corporate customer of your bank. Based on your collected information on the repayments of similar borrowers, you estimate that this borrower has a full-repayment probability of 90%, default probability of 10%, and the losses given default (LGD) distribution of: Recovery: 80% of principal Half of principal Total loss Probability: 60% 30% 10% If your cost of funds is 5%, what interest rate are you going to charge on the loan?
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