Suppose there are two types of potential borrowers. Half are Type A borrowers who have projects that
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First, find the equilibrium interest rates on the on loans to each in the case of symmetric information. (Note that they will differ.) Under asymmetric information, where the lenders cannot distinguish between types but know the distribution of potential borrowers, what equilibrium interest rate will be charged and who will borrow? Explain. Characterize the inefficiency that results from asymmetric information.
Distribution
The word "distribution" has several meanings in the financial world, most of them pertaining to the payment of assets from a fund, account, or individual security to an investor or beneficiary. Retirement account distributions are among the most...
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Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
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