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Let $D_1 = 1$ be the event that the first loan defaults and let $D_2 = 1$ be the event that the second loan defaults. Assume that we know the correlation $\rho$ between $D_1$ and $D_2$ and we know the marginals $p_1$ and $p_2$. The aim is to compute the probability that one of the two loans defaults (for the junior tranche) and the probability that both ...


2

Assuming the present is taken to be period 0, your approach is correct, subject to one caveat. As you suggest, the internal rate of return is the discount rate at which the discounted present values of all the costs and all the benefits of a project sum to zero. In this case, you are given the stream of benefits, and the right hand side of your equation ...


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