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Corporate Finance · Quiz 2 · 23 Nov 2025 · September 2025 term

Question 4: A 1-year government bond offers a 5% rate of return. A le…

Question 4

+4 marksOne correct option

A 1-year government bond offers a 5% rate of return. A lender, who is risk neutral, lends ₹50,000 to a friend. The lender believes the friend will pay back the promised amount with an 80% probability and will pay back nothing with a 20% probability. What is the default premium (in addition to the time premium) that the lender should ask from the friend?

  1. A

    31.25%

  2. B

    26.25%

  3. C

    6.25%

  4. D

    5.00%

Show answer

Correct answer

  • B

    26.25%

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Question 4 of 25 in the IIT Madras BS Corporate Finance (Corporate Finance) Quiz 2 paper sat on 23 Nov 2025, in the September 2025 term (IIT M DEGREE AN EXAM QDB2 23 Nov 2025 NEW). It carries 4 marks.

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