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Face value of loan B $500000 Length of time remaining to loan maturity τ 4 years Risk-free rate i = 4% Borrower’s leverage ratio d 60% Standard deviation of the rate of change in

Face value of loan (B) = $500,000

Length of time remaining to loan maturity (τ) = 4 years

Risk-free rate (i) = 4%

Borrower’s leverage ratio (d) = 60%

Standard deviation of the rate of change in the value of the underlying assets = 15%

Jun 16 2020 View more View Less

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