Consider the asset introduced above. It costs 100, and gives a payoff of 130 or 60, with equal probability.

Imagine that you invest 10 of your own money (as equity) and you need to borrow 90. You borrow from Warren Buffet, the famous and very successful financier. To make things simple, he is risk-neutral and just wants to break even on the loan (i.e. he discounts payoffs at a 0% rate). This means that he must get 90 back, in expectation.

1. What interest rate must he charge you?
2. What is your expected profit if he charges you that interest rate?
3. According to the answer above, do you choose to invest?

Please enter your answer to question 1 here. You will be prompted to answer the following two questions next.

What interest rate must he charge you? (Hint: his gains in the good state just need to offset his losses in the bad state. Then, express your answer as a percentage of the loan amount.) Give your answer in %, rounding it up and just enter the number (e.g. if your answer is 6.17%, just enter 7).