Calculate the moneylenders expected profits from making loan

Reference no: EM13219392

Consider a typical village money lender in a loan market where competition among money lenders drives the rural rate of interest to a point where each lender on average earns zero expected profits (over and above the opportunity cost of funds to lenders). Suppose the typical moneylender has 200,000 yuan to lend out to farmers in the village and the opportunity cost of his funds (what the lender can get if he puts his funds in the bank) is 15% per annum. A) Suppose there is no risk of borrowers defaulting on their loan (i.e. the probability of repayment, p=1), what will be the prevailing interest rate that will be charged to farmers in the village? (hint: calculate the moneylender's expected profits from making the loan)

Reference no: EM13219392

Questions Cloud

Show the service model of virgin airlines : Service Model of Virgin Airlines including an introduction to the company, the relative strengths and weaknesses of their customer service model.

Why would you hire the new sales associate : Suppose you are considering adding another sales associate to the floor. Your current total sales are $40,000 per day and your cost of sales, including the sales associates are $66,000 per day. The new sales associate should increase sales

Identify the opportunities and potential threats : Identify the opportunities and potential threats to the organic foods industry by completing a SWOT analysis and how can a competitive advantage be achieved using the strengths and opportunities identified in the SWOT

Explain what is the expected return from each technique : Consider a village money lender who lends to borrowers on a repeated basis and the interest rate that she charges is fixed at 10%. The loans are informal and are not backed up by written contracts. The lender has no way to recover a loan if the bo..

Calculate the moneylenders expected profits from making loan : Consider a typical village money lender in a loan market where competition among money lenders drives the rural rate of interest to a point where each lender on average earns zero expected profits (over and above the opportunity cost of funds to l..

What is the incremental cost of the new shift : Suppose you currently run one shift at your plant. You have $1,000 per day in administrative overhead and the daily wages and materials cost of operating the shift are $30,000. If you expand to two shifts, your average cost per-shift.

Explain the view that that thinkers political : Write an essay discussing the view that that thinkers political thought is a commentary on the principles and problems of free government, including in some respects a modification of those principles, as advanced in the Declaration of Independenc..

What will be the excess demand for apartments : Recent increases in rents have caused the citizens of Elmville to vote for a rent ceiling of $1200. Assuming all rental units in Elmville are identical and the supply and demand for rental units are given by Qs = -1000 + 20P Qd = 50000 - 10P

Determine how many units of x will zcorp buy : Q = 500X - 2X2 where X is the only variable input used by ZCorp to product its product, Q. Because ZCorp sells its product in a perfectly competitive market, it can sell all the Q it produces for $25. The current market price for input X is $100. ..

User Account

All Pages