You take out a bond, promising to pay $1100 next year, to finance a new venture with the following probabilities of success and payoffs after 1 year: With probability 15%, you get $800. With probability 25%, you get $2000. With probability 60%, you get $4500. If the bond is currently priced at $950, what is the quoted interest rate? What is the expected rate of return on this bond?

Your food service business has applied to a local bank for a $3 million loan. There is a 30% chance that the Olympics will come to your city next year, increasing your net profits from $2.5 million (if no Olympics, 70%) to $5.5 million. If the bank can make risk free loans at 6%, what interest rate do you expect the bank to quote you?