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Please answer asap. thank you! :) There are two types of projects in the market: A (safer) and B (riskier). At time 1, the payoff
Please answer asap. thank you! :)
There are two types of projects in the market: A (safer) and B (riskier). At time 1, the payoff of A will be either $500 (probability 0.75 ) or $300 (probability 0.25 ). The appropriate discount rate for project A is 12%. The minimum price A can accept is $350. The payoff of B will be either $800 (probability 0.2 ) or $100 (probability 0.8 ). The appropriate discount rate for project B is 20%. In this simple economy, there are 90% chance that the project will be A. Evaluate the funding situation, i.e., which type of project will be funded and the price, based on the following scenarios: (1) When there is no information asymmetry and everyone knows everything. (1 points) (2) When there is information asymmetry and investors cannot tell if the project is A or B. (1 points) (3) If an honest information service firm exists in the market that can separate A from B and provide credible certification. What is the maximum price that the agent can charge for the service? ( 2 points) Step by Step Solution
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