A competitive lender makes loans to a pool of borrowers that are identical. After borrowers have...

 

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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 Pg. With probability 1 - Pg. Project G pays a rate of return of -1, the borrower defaults on the loon, and the lender receives nothing. Project B pays the borrower a rate of return of r with probability Ps. And with probability 1- Pb. Project B pays a rate of return of -1, the borrower defaults on the loan, and the lender receives nothing. We assume as usual that rg < TbPg > Pb. and P, (1+rg) > po(1+r). Suppose r = 0.10. rs = 0.12. pg = 0.98, p=0.4. Tp=0.02, L = 1. The lender can't distinguish between borrower types and so it charges all borrowers the same interest rater. The lender lends an amount L and pays interest rp on funds acquired from depositors. Round your answer to at least three decimal places. Q4.1 3 Points Compute the value for r such that the borrower is indifferent between projects G and B. Round your answer to at least three decimal places. Enter your answer here Save Answer Q4.2 3 Points Suppose that r₂ = 0.15. Compute the collateral to loan ratio c that ensures that the borrower is indifferent between the projects G and B. Round your answer to at least three decimal places. Enter your answer here Save Answer 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 Pg. With probability 1 - Pg. Project G pays a rate of return of -1, the borrower defaults on the loon, and the lender receives nothing. Project B pays the borrower a rate of return of r with probability Ps. And with probability 1- Pb. Project B pays a rate of return of -1, the borrower defaults on the loan, and the lender receives nothing. We assume as usual that rg < TbPg > Pb. and P, (1+rg) > po(1+r). Suppose r = 0.10. rs = 0.12. pg = 0.98, p=0.4. Tp=0.02, L = 1. The lender can't distinguish between borrower types and so it charges all borrowers the same interest rater. The lender lends an amount L and pays interest rp on funds acquired from depositors. Round your answer to at least three decimal places. Q4.1 3 Points Compute the value for r such that the borrower is indifferent between projects G and B. Round your answer to at least three decimal places. Enter your answer here Save Answer Q4.2 3 Points Suppose that r₂ = 0.15. Compute the collateral to loan ratio c that ensures that the borrower is indifferent between the projects G and B. Round your answer to at least three decimal places. Enter your answer here Save Answer

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The lender lends to a pool of identical borrowers The borrowers have option to invest in two project... View the full answer