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Question
The duration of a soon to be approved loan of $10 million is four years. The 99th percentile increase in risk premium for bonds belonging to the same risk category of the loan has been estimated to be 5.5 percent.
What is the capital (loan) risk of the loan if the current average level of interest rates for this category of bonds is 12 percent?
A. -$550,000.
B. -$1,564,280.
C. -$1,964,280.
D. -$2,000,000.
E. -$2,200,000.
Answer
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