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What probability of default does the bank

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Antonio asks for a one-year loan at a bank when the one-year Treasury rate is 2%. Answer the following questions about his application. (Show your work for full credit.)

Problem 1: If the loan is an unsecured vacation loan carrying an interest rate of 4.21%, what probability of default does the bank use when pricing Antonio's loan? (report the probability to the nearest hundredth of a percent.) ______

Problem 2: If the loan were secured and carried an interest rate of 2.91% and had the same probability of default as in part a, what is the expected recovery rate on the loan?

Reference no: EM132887385

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