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What loan a competitive banking industry would accept

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Suppose now that Newvel's fixed costs are only $80 million per period. What would be the loan contract that a bank in a competitive banking industry would accept to loan Newvel worsens.

Specifically there is a 50 percent chance of earning $200 million and a 50 percent chance of earnings only $40 million.

Fixed costs are $80 million per period. Now what would be the loan contract that a bank in a competitive banking industry would accept to loan Newvel $80 million in each period?

Reference no: EM13200149

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