The Default Rate of Don's New Customers Has Been Running

question 17

Multiple Choice

The default rate of Don's new customers has been running at 20 percent. The average sale for each new customer amounts to $500, generating a present value of profit of $200 and a 30 percent chance of a second order next year. The default rate on second orders is only 5 percent. If the interest rate is 6 percent, what is the expected profit from each new customer?

• A)$152.50
• B)$149.53
• C)$275
• D)$139.62

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Definitions:

Philip Zimbardo

A renowned psychologist best known for conducting the Stanford prison experiment, exploring human behavior under confinement.

Standard Condition

refers to the baseline or normal conditions under which an experiment is conducted, serving as a control for comparison.

Obedient Group

A group of individuals who readily follow the commands or directions of a leader or authority figure, often without questioning.

Heart Condition

A general term used to describe a range of disorders that affect the heart's structure and function.