Suppose a bank is faced with two types of borrowers (a high risk borrower that should be charged an interest rate of 9% and a low risk borrower that should be charged an interest rate of 4%).? ? There is a 30% chance of getting a high risk borrower and a 70% chance of getting a low risk one.? ? What is the expected interest rate that will be charged by a bank that cannot exactly distinguish between the two types but knows the probabilities of each type.? ? In this market for loans what would be the result?
Paper#27207 | Written in 18-Jul-2015Price : $22