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:

Bulimia Nervosa

An eating disorder characterized by episodes of binge eating followed by behaviors to prevent weight gain, such as self-induced vomiting, excessive exercise, or the use of laxatives.

Purge

To remove or eliminate something undesirable completely, often used in the context of emotional or physical cleansing.

Hallucinations

Perceptions in a conscious and awake state in the absence of external stimuli, which have qualities of real perception, making them vivid and distinct.

Sensory Perceptions

The process of receiving and interpreting information through the senses such as sight, sound, touch, taste, and smell.