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These are my questions. Q1.6 2 Points Explain in words what is happening to the borrowers' behavior at the discontinuity in the lender's profit function
These are my questions.
Q1.6 2 Points Explain in words what is happening to the borrowers' behavior at the discontinuity in the lender's profit function that you graphed in the previous question. Enter your answer here Save AnswerQ1 11 Points A competitive lender makes loans to a pool of borrowers that are identical. After borrowers have received their loans they choose one of two investment projects. Project G pays the borrower a rate of return of r, with probability p, With probability 1-p. the project earns a zero rate of return, the borrower defaults on the loan, and the lender receives back the initial loan amount. Project B pays the borrower a rate of return of r, with probability py. With probability 1-p., the project earns a zero rate of return, the borrower defaults on the loan, and the lender receives back the initial loan amount. We assume that r pa, and Pg(l+r,) > p (1+r) The lender can't observe in which project the borrower invests and so it charges all borrowers the same interest rate rx. The lender lends an amount _ and pays interest ro on funds acquired from depositors. Q1.1 1 Point Which project would the lender prefer that the borrowers undertake? O Project B O Project G Save Answer Q1.2 2 Points Explain in words why your answer to the previous question is true. Enter your answer here Save AnswerQ1.3 1 Point Write down an expression for the profit that a borrower expects from Project G and submit an image file depicting your answer. Please select file(s) Select fillets) Save Answer Q1.4 2 Points Suppose r = 0.09, rs = 0.10, p, = 0.99, p. = 0.3, ro = 0.02, L = 100. Find the value for ry such that the borrower is indifferent between projects G and B. Round to three decimal places. Enter your answer here Save Answer Q1.5 3 Points Either by hand or using a computer, graph the lender's expected profit function E() for values of ry between 0.00 and 0.10. Make sure axes and y), are clearly labeled. Upload an image file containing your graph. ) Please select file(5) Select file(s) SaveStep by Step Solution
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