Which of the Following Credit Decisions Appears Correct for a Customer

question 69

Multiple Choice

Which of the following credit decisions appears correct for a customer that intends to order $1,000 of goods annually that have a 20% profit margin if the probability of default is 20% and the discount rate is 10%?

• A)Reject because expected loss equals $320
• B)Reject because expected profit equals $0
• C)Accept because expected profit equals $1,440
• D)Accept because expected profit equals $3,200

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Definitions:

Personality

Individual differences in characteristic patterns of thinking, feeling, and behaving.

Manager

A person responsible for controlling or administering an organization or group of staff.

Personality Traits

Persistent traits that define how a person acts, including qualities like openness, conscientiousness, extraversion, agreeableness, and neuroticism.

Cognitive Ability

The capacity to perform mental processes such as learning, reasoning, problem-solving, and memory.