What rate of interest will the risky firm has to offer

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Consider a firm that wishes to borrow Php 100,000 for one year. Suppose that there is a 20% chance that the firm will go out of business before the end of the year (repaying none of its debts) and an 80% chance that it will survive and repay all its debts. If potential lenders can earn 10% per year by lending to other firms that are certain to repay their debts, what rate of interest will this risky firm has to offer if it is to be able to borrow the amount of Php 100,000.00?

Reference no: EM13243782

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