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Lending institution expect to earn

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Universal Savings & Loan has $10,000to lend. Risk-free loans will be paid back in full next year with 8%interest. Risky loans have a 10%chance of defaulting (paying back nothing) and a 90%chance of paying back in full with 20%interest.

How much profit can the lending institution expect to earn? Expected profit from the risk-free loan is

Reference no: EM131424210

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