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QUESTION 6 Cortland Bank awarded a loan to SunEdison at 12% for 3 years. The pure rate of interest is 2%. The companys defau

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Answer #1

1.
=(Loan rate-pure rate-default risk premium-maturity risk premium-liquidity risk premium)*3-inflation for 1 year-inflation for 2 year
=(12%-2%-3%-1%-2%)*3-3%-4%
=5.00%

2.
All the companies approved by SEC need not necessarily be safe investment
Historical industry growth rate is not an indicative of future growth rate
The company's profitability, market share, competitiveness also needs to be considered.

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