Minimize expected interest costs

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Condo Construction Company is going to First National Bank for a loan. At the present time, the bank is willing to lendCondo up to $1 million, with interest costs of 10%. Condo believes that the amount of borrowed funds needed during thecurrent year is normally distributed, with a mean of $700,000and a standard deviation of $300,000. If Condo needs to borrowmore money during the year, the company will have to go toLouie the Loan Shark. The cost per dollar borrowed from Louie is 25¢. To minimize expected interest costs for the year,how much money should Condo borrow from the bank?

Reference no: EM13888376

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