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Suppose a bank is giving out loans. Each loan given has a fixed cost to the bank of $20, which covers the paperwork, etc. The
Suppose a bank is giving out loans. Each loan given has a fixed cost to the bank of $20, which covers the paperwork, etc. The bank charges interest strictly to cover this cost they do not charge for inflation, opportunity cost, risk of default, etc. and they make exactly zero profit. Meanwhile, the bank's policy is to cap the value of the loan at ten times the value of the collateral. So when Eder asks for a loan and puts up $100 in collateral, the bank gives him a $1000 loan. He needs to pay back the $1000 plus the $20 administrative fee, which means his interest rate is $20 / $1000 = 2%. Next, Anjaly asks for a loan but can only put up $10 in collateral, so the bank gives her a $100 loan. What is Anjaly's interest rate
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