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Originally Posted by RMJH
Yeah but, the variability of returns (ie risk) goes up as the grade increases. An expected return of 15% on a D grade is better than 15% on a E grade, you need a higher return to compensate for the higher risk.
I think this highlights one point that doesn't get much discussion. When the economy performs worse, I expect there to be more defaults. One could argue that the default rates used now are from a fairly good economic environment. What will happen to the default rates when the economy turns down? No change? Double? Triple? Does Harmoney have any experience in those circumstances? At that point I'd rather have a loan being paid anything, even an A1 getting 5%, than a loan written-off.
Last edited by kiwi_on_OE; 28-09-2017 at 12:20 AM.
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