User Account

All Pages

Calculate the fair rate for project a

Assignment Help Finance Basics
Reference no: EM132531997

1. For the information asymmetry case, show calculations to determine the selling price and which cars remain in the market. Description Peaches

. peaches Lemons

Buyer's Value $11,200 , / $9,400

Seller's Value $10,300, / $7,500

Proportion 4 / 3

2. A lender is willing to make a loan as long as 11% expected rate of return is received. Borrowers having no wealth, but access to two projects that require $1.5 million of initial financing, apply for a loan. The expected pay-offs for each project are:

Project A pays: $2.2 million with probability of 0.75 $1.6 million with probability of 0.25

Project B pays: $2.5 million with probability of 0.6 $1.1 million with probability of 0.4.

(a) Calculate the fair rate for project A.

(b) Calculate the fair rate for project B.

(c) Calculate the maximum rate that can be charged.

(HINT: Borrowers will participate in the loan if they can obtain at least $0.2 million in the 'high' state.)

The market is made up of 45% of project A's and 55% of project B's and the bank can't distinguish between the projects.

(d) Given the maximum rate you calculated in

(c), will the lender obtain their 11% expected rate of return, given the loan market composition?

Reference no: EM132531997

Questions Cloud

What is the direct labor efficiency variance : The entity sets the benchmark at 2 direct labor hours per product at a standard rate of P100 per direct labor hour. What is the direct labor efficiency variance
Compare and contrast rational choice theory and trait theory : Compare and contrast rational choice theory and trait theory, discuss both theories in detail. Was it acceptable at that time? use historical example
Which method you think is the best to find out : "Please don't do it in Excel or Spread sheet. Give me the full explanation for my understanding."
What role has class and gender played in the lives : What role has class, race, and gender played in their lives? How do you see these stratifiers as playing a role, even if the interviewee is unaware
Calculate the fair rate for project a : 1. For the information asymmetry case, show calculations to determine the selling price and which cars remain in the market. Description Peaches
What is the initial measurement of noncontrolling interest : An asset of Entity B is overvalued by P60,000 while one of its liability is undervalued by P40,000. What is the initial measurement of noncontrolling interest
Calculate the fair rate for project a : 1. For the information asymmetry case, show calculations to determine the selling price and which cars remain in the market. Description Peaches. peaches Lemons
Review of technology adoption models : You read THE LITERATURE REVIEW OF TECHNOLOGY ADOPTION MODELS AND THEORIES FOR THE NOVELTY TECHNOLOGY before completing the assignment.
Discuss how do members of society perceive institution : What the history of your institution. How did it emerge? How did it come into existence? How do members of society perceive your institution?

Reviews

Write a Review

Finance Basics Questions & Answers

  What is the monthly mortgage payment for the borrower

Consider a borrower that is approved for a standard 10-year, fully amortizing house mortgage with an original balance of $500,000 and a note rate

  What is the irr for projects

What is the IRR for each of these projects? Using the IRR decision rule, which project should the company accept? Is this decision necessarily correct?

  Existence of a futures market in human blood

Assume the existence of a futures market in human blood. The spot price (today's market price) is $200 per pint. (A curious comparison - HP #45 ink cartridges are $355 per pint.) Your hospital is concerned about rising blood prices because competi..

  Show the cash flow diagrams of the currency swap

Show the cash flow diagrams of this currency swap. Make sure to quantify every cash flow exactly (i.e., use a graph as well as the corresponding number).

  What is booth additional funds needed for the coming year

Additional Funds Needed The Booth Company's sales are forecasted to double from $1,000 in 2012 to $2,000 in 2013. Here is the December 31, 2012.

  Payment were made in advance

If a machine costs $50,000 and $5,000 a year for the lessor to maintain and insure, what equivalent annual cost would serve as the basis of a full-service

  What is the intrinsic value of equity

Please who work so I can see how you came up with the answer. Really looking to understand more so then getting an answer.

  How much should you be willing to pay

How much should you be willing to pay for the stock if you require a 17 percent return?

  Discuss the major attributes of the below financial assets

Problem: You have recently won $10 million in a lottery, and you are considering investing the funds in financial assets.

  Develop three to four-page analysis on the projected return

Develop a three to four-page analysis on the projected return on investment for your college education and projected future employment

  Computation of net present value with given data

Computation of net present value with given data and What is its net present value

  What interest rate would you expect to pay on the issue

If the 10 year maturity premium is 0.4%, what interest rate would you expect to pay on the issue?

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

Submit Assignment

Academics

Major Subjects

Majors

Get In Touch

whatsapp: +1-415-670-9521

Phone: +1-415-670-9521

Email: [email protected]

TERMS & POLICIES

HELP & SUPPORT

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd