3)

Say that a principal hires an agent to work on a project. If the agent works hard, the project will succeed

with prob. 1, and if the agent doesnt work hard, the project succeeds with prob. 0.74. The cost of

working hard is $150 and the cost of not working hard is $35. The principal pays the agent $W only if the

project succeeds. What is the min W needed so agent picks to work hard?

4)

A bank issues $360 loans to two types of borrowers, type A and B. Type A repays with probability 0.85

and type B repays with probability 0.75. If the bank has perfect information about type, then the

difference between the two competitive interest rates on these loans is _____%.