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# Microsoft Word - Chap012.doc LNW Bank is charging a 12 percent interest rate on a $5,000,000 loan. The bank also charged $100,000 in fees to...

Microsoft Word - Chap012.doc

LNW Bank is charging a 12 percent interest rate on a $5,000,000 loan. The bank also charged $100,000 in fees to originate the loan. The bank has a cost of funds of 8 percent. The borrower has a five percent chance of default, and if default occurs, the bank expects to recover 90 percent of the principal and interest.

12-60 What is the expected return on the loan using the KMV model?