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Suppose a borrower wants to borrow $50 from you. You believe that the probability of repayment is 80%. The borrower does not have any asset
Suppose a borrower wants to borrow $50 from you. You believe that the probability of repayment is 80%. The borrower does not have any asset nor posts any collateral and is protected by limited liability protection. If you are risk-neutral, what is the minimum interest rate you should charge to break-even? (Assume that the overhead cost of making the loan is $0)
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