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What is the expected return and risk on the loan

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Bronte Bank is charging a 15 percent interest rate on a $3,000,000 loan. The bank also charged $50,000 in fees to originate the loan. The bank has a cost of funds of 8 percent. The borrower has a 7 percent chance of default, and if default occurs, the bank expects to recover 85 percent of the principal and interest.

Problem 1: What is the expected return on the loan and the risk on the loan using the Moody's Analytics Portfolio Manager model?

Reference no: EM132949762

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