Assume the risk free rate is 7% and a person wants to borrow $200 from...
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Assume the risk free rate is 7% and a person wants to borrow $200 from a risk neutral investor Assume: With prob. 80%, the borrower repays loan + promised interest With prob. 19%, the borrower repays $100 With prob. 1%, the borrower repays $0 Q: What is the default premium?
Select one:
a. The default premium is 13.87%
b. The default premium is 14.88%
c. The default premium is 16.88%
d. The default premium is 15.88%
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