Let's say a bank faces two options when making a loan. They can loan $1,000,000 to a
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Let's say a bank faces two options when making a loan. They can loan $1,000,000 to a wealthy shopowner looking to open up a new branch of his store and earn 10% in interest. There is a 95% chance the shopowner pays back the loan and only a 5% chance of default. The other option is the bank can loan $1,000,000 at a 30% interest rate to a entrepreneur with a poor credit history and no collateral. There is a 60% chance that the entrepreneur will default on the loan and only a 40% chance the loan gets paid back. Using the expected value formula and assuming no FDIC, which loan will the bank choose to make? Which loan will the bank make when there is FDIC?
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International Marketing And Export Management
ISBN: 9781292016924
8th Edition
Authors: Gerald Albaum , Alexander Josiassen , Edwin Duerr
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