You Want to Borrow $20,000 for One Year

question 49

Multiple Choice

You want to borrow $20,000 for one year. Your bank believes that there is a 96% probability that you will be able to repay the loan with interest, a 3% probability that you will be able to repay only $15,000, and a 1% probability that you will repay nothing. The risk-free rate is 6%.
-Refer to the information above. If the bank agrees to lend you the money at the risk-free rate of 6%, what will the bank's expected return be?

• A)+5.76%
• B)+4.01%
• C)+5.01%
• D)-1.75%

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Definitions:

Conforming Items

Items that meet the specified requirements or standards set by a quality control process.

Process Capability Index

A statistical measure of a process's ability to produce output within specified limits, indicating the performance of a process.

Specification Fill Weight

A quality control measure used in manufacturing to ensure that products meet a predetermined weight threshold.

Standard Deviation

A measure of the amount of variation or dispersion of a set of values, indicating how much individual values deviate from the mean of the set.