The Following Is Information on Current Spot and Forward Term

question 109

Multiple Choice

The following is information on current spot and forward term structures (assume the corporate debt pays interest annually) :

-The duration of a soon to be approved loan of $10 million is four years.The 99^th 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.

---

Definitions:

Determined Behavior

Behavior that is purposeful and focused on achieving specific goals.

Self-control

The ability to regulate one's emotions, thoughts, and behaviors in the face of temptations and impulses.

External Variables

Factors outside of an individual's immediate control that can impact outcomes or behaviors.

Human Nature

The inherent characteristics, including ways of thinking, feeling, and acting, that all humans tend to have naturally, irrespective of societal influence.