An entrepreneur is requesting a loan of $100 today. The bank forecasts that the startup has a 20% chance of failure, in which the venture would be worth only $50 in salvage value. The bank also forecasts that there is an 80% chance of success in which case the venture would be worth $500. The bank requires a 10% expected rate of return in order to offer the loan. How much must the entrepreneur promise to repay in the good state (success) such that the bank may realize the expected return? What would happen to the promised repayment if the probability of failure increased? An entrepreneur is requesting a loan of $100 today. The bank forecasts that the startup has a 20% chance of failure, in which the venture would be worth only $50 in salvage value. The bank also forecasts that there is an 80% chance of success in which case the venture would be worth $500. The bank requires a 10% expected rate of return in order to offer the loan. How much must the entrepreneur promise to repay in the good state (success) such that the bank may realize the expected return? What would happen to the promised repayment if the probability of failure increased