A borrower takes out a loan from a bank and can invest in a risky project that w

Question

A borrower takes out a loan from a bank and can invest in a risky project that will produce revenue of $175 with probability 0.75 and revenue $120 with probability 0.25. The bank requires a loan repayment of $115. The other alternative for the borrower is to invest his loan in a non-risky project that will produce revenue of $167 with certainty. Then from the borrower's perspective, the expected payoff O none of the above O on the risky project is highest O on the non-risky project is highest on the two pro lects exactly the same

Explanation / Answer

On risky Project

Expected revenue = 175*0.75+120*0.25 = $161.25

In non Risky

Expected Payoff = $167

So, on the non-risky project is highest

Option C is Correct

Related Questions

Navigate

• Browse (All)
• Browse A
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.