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kaledai kaledai
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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.
  Should the credit union purchase the report if it costs 150?
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sky2walkersky2walker
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5 years ago
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The tree above shows that the credit report is still valuable, even in the imperfect case. The information increases the expected value to 1,543, thus, the EVSI is 343 (1,543-1,200). Therefore, the credit union would be justified in purchasing the report for 150.
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