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6. Question 6 A borrower requests a loan for $50,000 for one year. The lender assesses a 5% probability of default and believes that none of the loan will be recoverable if the borrower defaults. If the risk-free rate is 2%, what interest rate will the lender charge if she demands a 5% risk premium on this type of loan?

Respuesta :

anthougo

The interest rate that the lender will charge based on a risk premium of 5% is 7%.

What is interest risk premium?

An interest risk premium is an additional return that an investor requires on the risk-free rate.

The risk premium is the required return on investment less the risk-free rate.

Investors require risk premium to compensate them for the likelihood of debt defaults.

Data and Calculations:

Amount borrowed = $50,000

Maturity period = 1 years

Probability of default = 5%

Risk-free rate = 2%

Risk premium required = 5%

Interest rate to charge = risk-free rate + risk premium

= 7% (2% + 5%)

Thus, the interest rate that the lender will charge based on a risk premium of 5% is 7%.

Learn more about the interest risk premium at https://brainly.com/question/13026933

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