There are two borrowers who want to run a project that requires an investment if $100. The project A is expected to succeed with 90 percent chance and get a gross revenue of y=$150, while the project B succeeds with 80% chance and generates a gross return of $200.when the projects fails, both borrowers will Default on their loans and get the limited liability protection. One the lenders side, gross cost of lending is $100 as there is no overhead cost.

1) using the Information provided, compute the threshold interest rate that the lender should charge to each project to break even.

2) if the lender cannot tell project A from B, and only knows that project A and B make up 60% and 40%, what is the threshold interest r

Answer rating: 100% (QA)

SOLUTION To compute the threshold interest rate for each project we need to consider the expected va... View the full answer