1. You manage a loan portfolio at a local bank. One day you are approached by a Jim Riskind, who is seeking an unsecured loan of $10,000 for a period of 1 year. Upon checking his credit score and your bank's historical data, you estimate that there is a 5.6% probability of Jim defaulting on the loan.
If the bank wants to earn an 5.8% rate of return on its money on average, what interest rate must you quote to Jim on this loan?
Assume than in case of default, you lose the entire loan amount (zero percent recovery).
Enter answer in percents, acurate to 2 decimal places.
2. You manage a loan portfolio at a local bank. One day you are approached by a Jim Riskind, who is seeking an unsecured loan of $10,000 for a period of 1 year. Upon checking his credit score and your bank's historical data, you estimate that there is a 9.3% probability of Jim defaulting on the loan.
If the bank wants to earn an 8.5% rate of return on its money on average, what interest rate must you quote to Jim on this loan?
Assume than in case of default, the bank is on average able to recover 50 cents on the dollar owed.
Enter answer in percents, acurate to 2 decimal places.