× Didn't find what you were looking for? Ask a question
  
  
Top Posters
Since Sunday
18
14
7
r
6
6
u
5
V
4
b
4
r
4
o
4
d
4
n
4
Home Q & A Board Other Fields Homework Help Business Management
New Topic  
MADUBUCA76 MADUBUCA76
wrote...
Go to Answer
Posts: 620
Rep: 0 0
5 years ago
A customer has approached a local credit union for a 20,000 1-year loan at a 10 interest rate. If the 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 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.
  The bank can thoroughly investigate the customers credit record and obtain a favorable or unfavorable recommendation. If the credit report is perfectly reliable, what is the most the credit union should be willing to pay for the report?
Read 41 times
1 Reply
Replies
Answer verified by a subject expert
Alphabet!Alphabet!
wrote...
#1
Top Poster
Posts: 920
Rep: 5 0
5 years ago
Sign in or Sign up in seconds to unlock everything for free

The tree above shows that if the credit report is favorable, the credit union should make the loan, and if the report is unfavorable, it should not make the loan. This increases the expected value to 1,960 with the credit information. Thus, the EVPI is 760, which is the most the credit union should be willing to pay
1

Related Topics

MADUBUCA76 Author
wrote...

5 years ago
Just got PERFECT on my quiz
Chaldoren
wrote...

Yesterday
Thanks
sleinhi
wrote...

2 hours ago
Correct Slight Smile TY
New Topic      
Quick Reply
Explore
Post your homework questions and get free online help from our incredible volunteers
  287 People Browsing
 237 Signed Up Today
Start New Topic Take the Tour Study Tips Study ToolsNew Topics Trending Browse by Textbook
Related Images
  
 844
  
 286
  
 80
Your Opinion
What percentage of nature vs. nurture dictates human intelligence?
Votes: 328
Previous poll results: Should Ph.D.'s be addressed as doctors?