Question

Two independent loan prospects exist, call them A and B. Both will pay the agreed-upon $12...

Two independent loan prospects exist, call them A and B. Both will pay the agreed-upon $12 return (on $100) with probability 3/4. With probability 1/4, on the other hand, they default and pay only $4.00. a. For an individual saver investing in one or the other, what is the average return (expected return)? What is the variance? b. Suppose that an intermediary forms by merging the funds of the 2 savers and investing in both projects, splitting the total return equally between the 2 savers. What is the average return to the individual saver? What is the variance? c. Compare a. and b. Does your result confirm the Law of Large Numbers? Explain.

Business   Economics   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
A large number of independent loan prospects are available, each paying a net return (on $100)...
A large number of independent loan prospects are available, each paying a net return (on $100) of $16 with probability 1/2 and $2 with probability 1/2. There are as many savers as loans, each with $100. Each saver in the economy derives Happiness (H) from income (I) according to : H= (square route) I There is competition between intermediaries and each costs--including "normal" profits--of $1.00 on every $100 invested. What return will intermediaries pay? Why? At this rate will they...
Large number of independent loan prospects are available, each paying return of $16 on $100 with...
Large number of independent loan prospects are available, each paying return of $16 on $100 with probability of 1/2 and 1/2 of $2 return. Each saver in economy derives happiness from income according to: H= I^(1/2) Competition between banks so each have costs--including normal profits--of $1.00 on every $100. What return will banks pay? Why? At this rate will they attract savers away from "going it alone" from lending directly, with each saver making a single loan? How do you...
Please read the article and answear about questions. Determining the Value of the Business After you...
Please read the article and answear about questions. Determining the Value of the Business After you have completed a thorough and exacting investigation, you need to analyze all the infor- mation you have gathered. This is the time to consult with your business, financial, and legal advis- ers to arrive at an estimate of the value of the business. Outside advisers are impartial and are more likely to see the bad things about the business than are you. You should...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT