The Default Rate of Don's New Customers Has Been Running

question 17

Multiple Choice

The default rate of Don's new customers has been running at 20 percent. The average sale for each new customer amounts to $500, generating a present value of profit of $200 and a 30 percent chance of a second order next year. The default rate on second orders is only 5 percent. If the interest rate is 6 percent, what is the expected profit from each new customer?

• A)$152.50
• B)$149.53
• C)$275
• D)$139.62

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Definitions:

Depression

A mental health disorder characterized by persistently depressed mood or loss of interest in activities, causing significant impairment in daily life.

Divorce

The legal dissolution of a marriage by a court or other competent body.

Advocacy

The act of speaking or acting on behalf of someone, especially in support of their rights or welfare.

Mental Illnesses

Disorders that affect mood, thinking, and behavior, ranging from depression and anxiety to schizophrenia.