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

---

Definitions:

Rewards

Benefits, both tangible and intangible, given to individuals or groups as recognition for their efforts and achievements.

Timeliness

The quality of being done or occurring at a favorable or useful time; appropriateness to the time or occasion.

Performance Contingency

The concept that employee performance outcomes are contingent upon certain conditions or factors.

Equity

The concept of fairness or justice in the way people are treated within various contexts, or in finance, the ownership interest in a company as represented by stocks or shares.