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Here is an extension of the previous question. Suppose that a moneylender is lending one dollar to a risky borrower. There is a probability of
Here is an extension of the previous question. Suppose that a moneylender is lending one dollar to a risky borrower. There is a probability of default (through some involuntary or strategic source that we do not model here). If that happens, assume that the entire loan is lost, principal and interest. (a) If the interest rate is r, and the repayment probability is p, write down the net expected payoff to the moneylender from making the loan
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