Question
I want to borrow $20,500 from you today so I can hire a landscaping company to redesign my property. I promise to repay principal plus
I want to borrow $20,500 from you today so I can hire a landscaping company to redesign my property. I promise to repay principal plus interest one year from now. There is a 68% probability that I will repay in full. There is a 22% probability that I will only be able to repay $14,000 and a 10% probability that I will be able to repay nothing. The annualized return on a 1-year Treasury is 1%. What is my total promised payment (principal plus interest) at time 1? Assume the world is risk-neutral with perfect markets.
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Advanced Accounting
Authors: Gail Fayerman
1st Canadian Edition
9781118774113, 1118774116, 111803791X, 978-1118037911
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