Homework 4: Information Loan Contracts: Solutions 1. National Cleaner Corp. needs a $1.5 million loan to nance a project that pays off next period. There are two projects available. A and B. You are a lending ofcer and know about the projects but cannot control the borrower's project choice. A will yield a payoff of $6.75 million with probability 0.6 or zero with probability 0.4. B will pay off $8 million with probability 0.5 or zero with probability 0.5. Everybody is risk neutral and the riskless interest rate is 10%. You want to make sure the borrower chooses project A with the use of collateral. However, collateral is costly and $1 of the borrower's collateral is worth only 90 cents to your bank