Onyx Corporation has a $200,000 loan that will mature in one year.The risk free interest rate is 6 percent.The standard deviation in the rate of change in the underlying asset's value is 12 percent,and the leverage ratio for Onyx is 0.8 (80 percent).The value for N(h1)is 0.02743,and the value for N(h2)is 0.96406. What is the required yield on this risky loan?

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This is the risk premium, so it is added to the risk-free rate of 6%
K(t) = 0.06 + .00165 = 0.06165. We can use the following formula to calculate the required yield on the loan:
Required yield = Risk-free rate + (Leverage ratio * Standard deviation * q) / (1 - Leverage ratio * (1 - q))
where q = N(h2) - Leverage ratio/N(h1)

Plugging in the given values, we get:
q = 0.96406 - 0.8/0.02743 = 24.758
Required yield = 6% + (0.8 * 12% * 24.758) / (1 - 0.8 * (1 - 24.758)) = 6.165%

Therefore, the best choice is A), as it is the calculated required yield on the loan.

Onyx Corporation Has a $200,000 Loan That Will Mature in One