Construct a decision tree to help the credit union loans

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Reference no: EM132869139

A customer has approached a local credit union in Brampton, Ontario for a $20,000 1-year loan at a 10% interest rate. If the Brampton credit union does not approve the loan application, the $20,000 will be invested in bonds that earn a 6% annual return. Without additional information, the credit union loan officer believes that there is a 5% chance that this customer will default on the loan, assuming that the loan is approved. If the customer defaults on the loan, the credit union will lose the $20,000.

Required:

-Construct a decision tree to help the credit union loans officer to decide whether or not to make the loan.

-For full point value, make sure to label all decision and chance nodes and include appropriate costs, payoffs and probabilities.

Reference no: EM132869139

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