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A competitive lender makes loans to a pool of borrowers that are identical. After borrowers have received their loans they choose one of two investment
A competitive lender makes loans to a pool of borrowers that are identical. After borrowers have received their loans they choose one of two investment projects. Project G pays the borrower a rate of return of rg with probability Pg. With probability 1 Pg, Project G pays a rate of return of -1, the borrower defaults on the loan, and the lender receives nothing. Project B pays the borrower a rate of return of rb with probability Pb. And with probability 1 Pb, Project B pays a rate of return of -1, the borrower defaults on the loan, and the lender receives nothing. = We assume as usual that rg Pb, and pg(1+rg) > Pb(1+rb). Supposer, 0.10, rb 0.12, Pg 0.98, pb = 0.4, rd = 0.02, L = 1. - The lender can't distinguish between borrower types and so it charges all borrowers the same interest rate r. The lender lends an amount L and pays interest rd on funds acquired from depositors. Round your answer to at least three decimal places. Suppose that ri 0.15. Compute the collateral to loan ratio c that ensures that the borrower is indifferent between the projects G and B. Round your answer to at least three decimal places. A competitive lender makes loans to a pool of borrowers that are identical. After borrowers have received their loans they choose one of two investment projects. Project G pays the borrower a rate of return of rg with probability Pg. With probability 1 Pg, Project G pays a rate of return of -1, the borrower defaults on the loan, and the lender receives nothing. Project B pays the borrower a rate of return of rb with probability Pb. And with probability 1 Pb, Project B pays a rate of return of -1, the borrower defaults on the loan, and the lender receives nothing. = We assume as usual that rg Pb, and pg(1+rg) > Pb(1+rb). Supposer, 0.10, rb 0.12, Pg 0.98, pb = 0.4, rd = 0.02, L = 1. - The lender can't distinguish between borrower types and so it charges all borrowers the same interest rate r. The lender lends an amount L and pays interest rd on funds acquired from depositors. Round your answer to at least three decimal places. Suppose that ri 0.15. Compute the collateral to loan ratio c that ensures that the borrower is indifferent between the projects G and B. Round your answer to at least three decimal places
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