You are working for an investment banks shipping division in charge of credit assessment of clients. You are given two projects to look at and evaluate their credit risk.

1- The first project involves a 3 year loan for the purchase of a 5 year old MR tanker whose current market value is $30m.

2- The second project involves a 3 year loan for the purchase of a 10 year old Suezmax tanker whose current market value is $42m

Both projects are set to operate on a one-ship-one-company basis and the companies would like to borrow as much as possible to the full price of the vessel. However, your bank has a strict policy of taking the vessel as collateral and only approving loans with a maximum default probability of 15%, in order to reduce its credit risk exposure. It is also known that both borrowers have good business and credit history; therefore, according to the assigned credit rating of borrowers, default may occur if value of the asset falls 5% below the amount borrowed.

--> What would be the yield on each of these asset-backed loans and their risk neutral recovery rates?