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Suppose you want to borrow some money for two years. you can repay the loan with single payment of 100000 in two year's time. the lending institution determines that there is a 6% chance that you will not repay the loan. the normal lending rate at that time is 12% per annum.

How much will they lend? If you repay the loan in full, What rate of interest was charged?

Reference no: EM132638261

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