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?

Answer rating: 100% (QA)

To calculate the expected interest rate the bank may quote for a 3 million loan we need to consider ... View the full answer