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What is the probability that Wellcare Ltd will default

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Question 1 - A house at 12 Institution View, Kingston 6, has 4 bed rooms and 3 bath rooms and is now up for sale. The property is in close proximity to two universities. Recently three houses on the same street were sold for $3,000,000, $3,150,000 and $3,000,000 respectively. The first house that was sold consists of 3 bedrooms and 2 bathrooms, the second house has 3 bedrooms and 3 bathrooms and the third house has 2 bathrooms and 3 bedrooms.

Using the information given, use the market value method of valuation to give the estimated value of the house at 12 Institution View.

Give one reason why there could be a variation in the actual selling price from the amount that you have estimated.

Question 2 - The corporate bonds of Wellcare Ltd, a cosmetics retailer, are trading 4% above the government bond rate of 8%. Loans given to retailers by Safe Bank Ltd that are defaulted on have a recovery rate of 50%.

a) What is the probability that Wellcare Ltd will default on its loan repayment to Safe Bank Ltd?

b) What is the minimum interest rate at which Safe Bank Ltd is likely to make a loan of $1,000,000.00 to Wellcare Ltd?

Reference no: EM133066789

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