What investigate and figure out to complete credit history

Reference no: EM13130242

You are a bank manager. David has approached your bank for a million dollar loan. The bank can charge 10% interest from David for this loan. The bank will buy government bonds at 4% interest rate in case David's application is rejected. You think there is 10% chance that David would default on his loan based on your knowledge about David. At a cost of about $1000, the bank can investigate and figure out David's complete credit history.

Based on the past performance, you know that the credit reports give a favorable credit rating 80% of the time when the customer honors loan commitments; and unfavorable credit rating 20% of the time even when the customer honors loan commitments. The credit reports give a favorable credit rating 25% of the time and an unfavorable credit rating 75% of the time when the customer does not honor loan commitments.

Reference no: EM13130242

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