Exhibit 9-2 a Customer Has Approached a Local Credit Union for a for a $20,000

question 16

Essay

Exhibit 9-2
A customer has approached a local credit union for a $20,000 1-year loan at a 10% interest rate. If the credit union does not approve the loan application, the $20,000 will be invested in bonds that earn a 6% annual return. Without additional information, the credit union believes that there is a 5% chance that this customer will default on the loan, assuming that the loan is approved. If the customer defaults on the loan, the credit union will lose the $20,000.
-Refer to Exhibit 9-2.Construct a decision tree to help the credit union decide whether or not to make the loan.Make sure to label all decision and chance nodes and include appropriate costs,payoffs and probabilities.

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Definitions:

Transgression

is an act that goes against a law, rule, or code of conduct; an offense.

Lying

The act of intentionally making a false statement with the purpose of deceiving others.

Bullying

A form of aggressive behavior in which someone intentionally and repeatedly causes another person injury or discomfort through physical contact, words, or in other ways.

Skipping School

The action of not attending school without a valid reason, typically considered as truancy.