What interest rate would the bank have to charge

Assignment Help Econometrics

Reference no: EM13192033

Suppose 1 year Treasury-bills were currently yielding 5.5%. Also suppose that a bank estimated that a particular loan applicant had a 30% chance of defaulting on a one year loan and that in the event of default the bank would recover only 25% of its scheduled payment of principle (estimated net proceeds of the sale of collateral). What interest rate would the bank have to charge to earn an expected rate of return on its loan equal to the T-bill rate?

Reference no: EM13192033

Questions Cloud

How old is the rock : In a rock from the lunar highlands, you determine that 60% of the original uranium-238 remains, while the other 40% has decayed into lead. How old is the rock?

Find the total force against the plate : thin plate has the shape of an isosceles triangle wide at the bottom and high. If the plate is submerged vertically in water with the top vertex below the surface and the bottom edge horizontal, find the total force against the (two sides of ) the..

Time and distance have been collapsed or compressed : What is meant by the current description of the global economy that "time and distance have been collapsed or compressed"? Do you agree? Do you think that our trading relationships will be affected in the future by this phenomenon?

What is the number of books sold in the highest of sales : The annual sales of romance novels follows a normal distribution, however the mean and std deviation are not known. 40% of the time the sales exceed 470,000 books and 10% of the time sales exceed 500,000 books. What is the number of books sold in ..

What interest rate would the bank have to charge : Suppose 1 year Treasury-bills were currently yielding 5.5%. Also suppose that a bank estimated that a particular loan applicant had a 30% chance of defaulting on a one year loan and that in the event of default the bank would recover only 25% of i..

Find the length of the field : A rectangular field is to be fenced along two sides and two ends. It is also required to have three additional cross fences from side to side in order to form four plots as illustrated below.

What must she expect to happen to short term interest rate : Assume that an investor is risk-neutral (i.e. assume that the investor always chooses the investment with the higher expected rate of return even if it is riskier). If the yield on 1-year marketable CD's is 6% while the yield on 2-year marketable ..

Find the speed of the wind and the speed of the plane : Flying with the wind a plane went 154 mph. Flying into the same wind the plane only went 124 mph. Find the speed of the wind and the speed of the plane in still air.

Lorissa files a petition for bankruptcy : Lorissa files a petition for bankruptcy. Lorissa's creditors must file with the court their proof of claims against Lorissa's assets within

User Account

All Pages