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On the lender's side, gross cost of lending is $115. Assume that the lenders market is competitive. 1) Compute the threshold interest rate that the
On the lender's side, gross cost of lending is $115. Assume that the lenders market is competitive. 1) Compute the threshold interest rate that the lender should charge to elicit high effort. 2) Will the borrowers be able to obtain the required funds from the lender? 3) Now suppose that the borrower has an asset that can be posted as collateral. What is the minimum size of the collateral that can change the answers in part 1) and 2)? On the lender's side, gross cost of lending is $115. Assume that the lenders market is competitive. 1) Compute the threshold interest rate that the lender should charge to elicit high effort. 2) Will the borrowers be able to obtain the required funds from the lender? 3) Now suppose that the borrower has an asset that can be posted as collateral. What is the minimum size of the collateral that can change the answers in part 1) and 2)
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