Solution-Write down the probability distribution of

Write down the probability distribution of repayment

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Problem: Suppose you loan a friend $100 at 10% interest. If the loan is repaid, you get $110 (the principal of $100 plus interest of $10), but there is a risk of 1% that your friend will default and you will get nothing at all. Thus the amount you are repaid is a random variable.

Required:

Question 1: Write down the probability distribution of your repayment.

Question 2: Compute the expected value of your repayment or the "mean repayment".

Reference no: EM132438181

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Write down the probability distribution of repayment

Reference no: EM132438181

Reference no: EM132438181

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