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4. A start-up company is willing to make payments of $500 per year for 8 years. A bank estimates that the company will go out
4. A start-up company is willing to make payments of $500 per year for 8 years. A bank estimates that the company will go out of business in any one year with probability .02.
a) If the bank wants its expected rate of return to be 3.5%, how much will they lend the company?
b) If the company ends up making all the payments, what interest rate were they charged?
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