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:

Culture

The shared beliefs, customs, arts, and institutions of a community, transmitted socially across generations.

Development Of Personality

The process by which an individual's distinctive patterns of thought, feeling, and behavior develop over time, influenced by both genetic and environmental factors.

Delusional System

A set of persistent false beliefs held despite evidence to the contrary, often occurring as part of psychiatric disorders.

Social Norms

Informal understandings that govern the behavior of members of a society, shaping expectations and regulations of conduct.