A commercial banks offers $2,000 loans and there are two types of borrowers, A & B....
A commercial banks offers $2,000 loans and there are two types of borrowers, A & B. Type A repays the loan 91% of the time, and type B repays the loan 84% of the time. Under perfect information, at the competitive interest rates, type A must make a repayment of ____ and type B repays ____.
Homework Answers
Answer:-
Repayment=Loan amount/probability of no default
(1)
A =2000/91%
=2197.8021
(2)
B =2000/84%
=2380.9523
At the competitive interest rates, type A must make a repayment of 2197.80 and type B repays 2380.95.
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