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Suppose that the First United Bank of America has two loans.Each is due to be repaid one period hence and has independent and identically distributed cash flows.Each loan will repay $300 with probability 0.8 and $150 with probability 0.2.However, while the bank knows this, the investors cannot distinguish this loan from that of the Third TransAmerica Bank which has the same number of loans, but will pay $300 with probability 0.5 and $150 with probability 0.5.There is a prior belied of 0.5 that the First United Bank of America has the higher-valued portfolio.Suppose that the First United wished to securitize these loans, and if it does so without a credit enhancement, the cost of communicating the true value is 7.5% of the true value.Assume that the discount rate is zero and that everybody is risk-neutral.
-How much can the claims to the class A bondholders be sold for?
A)$450
B)$420
C)$300
D)$280
E)$220

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Use the following information for questions 
Suppose that the First United Bank of America has two loans.Each is due to be repaid one period hence and has independent and identically distributed cash flows.Each loan will repay $300 with probability 0.8 and $150 with probability 0.2.However, while the bank knows this, the investors cannot distinguish this loan from that of the Third TransAmerica Bank which has the same number of loans, but will pay $300 with probability 0.5 and $150 with probability 0.5.There is a prior belied of 0.5 that the First United Bank of America has the higher-valued portfolio.Suppose that the First United wished to securitize these loans, and if it does so without a credit enhancement, the cost of communicating the true value is 7.5% of the true value.Assume that the discount rate is zero and that everybody is risk-neutral.
-How much can the claims to the class A bondholders be sold for? 
A)$450
B)$420
C)$300
D)$280
E)$220

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The Answer of Use the following information for questions 
Suppose that the First United Bank of America has two loans.Each is due to be repaid one period hence and has independent and identically distributed cash flows.Each loan will repay $300 with probability 0.8 and $150 with probability 0.2.However, while the bank knows this, the investors cannot distinguish this loan from that of the Third TransAmerica Bank which has the same number of loans, but will pay $300 with probability 0.5 and $150 with probability 0.5.There is a prior belied of 0.5 that the First United Bank of America has the higher-valued portfolio.Suppose that the First United wished to securitize these loans, and if it does so without a credit enhancement, the cost of communicating the true value is 7.5% of the true value.Assume that the discount rate is zero and that everybody is risk-neutral.
-How much can the claims to the class A bondholders be sold for? 
A)$450
B)$420
C)$300
D)$280
E)$220

Use the Following Information for Questions