Exhibit 9-2 a Customer Has Approached a Local Credit Union for a for a $20,000

question 16

Essay

Exhibit 9-2
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.
-Refer to Exhibit 9-2.Construct a decision tree to help the credit union decide whether or not to make the loan.Make sure to label all decision and chance nodes and include appropriate costs,payoffs and probabilities.

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