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:

Genetic Dispositions

Natural tendencies or susceptibilities influenced by genetic factors, affecting an individual's traits or behaviors.

Temperament

Temperament refers to the basic and inherent personality traits and behaviors that individuals show, often visible from early childhood and considered to have a biological basis.

Environment

The surrounding conditions and factors that affect the living and non-living elements of an organism or community, including natural, social, and built aspects.

Nature-Nurture Interactions

The dynamic interplay between genetic or biological predispositions and environmental influences on human behavior and traits.