2. Consider the problem of a lender who takes the interest rate ras exogenously given, but must determine L, how much to lend to each of his clients. The probability that a borrower repays is given by p = 0; - BL, where a is a base probability that a given borrower repays the loan, and B represents the sensitivity of repayment to the size of the loan, i.e. Iarger loans have a smaller probability of being repaid (but are more profitable for the lender if they are repaid). The cost of capital for the lender is exogenous and equal to c. Thus II = ||| a) Solve for the comparative static that shows how much a lender is willing to increase loan size for a borrower the more confident he is about the borrowers likelihood of repaying, i.e. .. (1+ da dL b) How does loan size change when the lenders cost of capital increases? i.e. c) When the exogenous interest rate increases, how does loan size change?, i.e.. 2. Consider the problem of a lender who takes the interest rate ras exogenously given, but must determine L, how much to lend to each of his clients. The probability that a borrower repays is given by p = 0; - BL, where a is a base probability that a given borrower repays the loan, and B represents the sensitivity of repayment to the size of the loan, i.e. Iarger loans have a smaller probability of being repaid (but are more profitable for the lender if they are repaid). The cost of capital for the lender is exogenous and equal to c. Thus II = ||| a) Solve for the comparative static that shows how much a lender is willing to increase loan size for a borrower the more confident he is about the borrowers likelihood of repaying, i.e. .. (1+ da dL b) How does loan size change when the lenders cost of capital increases? i.e. c) When the exogenous interest rate increases, how does loan size change?, i.e