Illustrate what is expected interest rate that will charge

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Reference no: EM1371117

Q. Suppose a bank is faced with two types of borrowers (a high risk borrower that should be charged an interest rate of 9% and a low risk borrower that should be charged an interest rate of 4%).Â Â re is a 30% chance of getting a high risk borrower and a 70% chance of getting a low risk one. Â Â Illustrate what is expected interest rate that will be charged by a bank that cannot exactly distinguish between two types but knows probabilities of each type. Â Â In this market for loans illustrates what would be result?

Reference no: EM1371117

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