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A loan buyer in a secondary market believes that % of the loans are high quality, and the rest are low quality. The buyer values
A loan buyer in a secondary market believes that % of the loans are high quality, and the rest are low quality. The buyer values high quality loans at $40,000 and low quality at $35,000. Banks selling loans value high quality loans at $38,750 and value low quality at $33,444. If the buyer cannot observe the bond's type, then the maximum price the buyer will pay is equal to the seller's value of high quality loans when x is 65% 75% 79% 85%
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