A new business opportunity has a 70% chance of being worth $500,000 next year and a 30% chance of being worth $100,000. The appropriate expected rate of return is 10%.
-Refer to the information above. This new opportunity will be financed with a $150,000 commercial loan. What must the promised future payoff to the lender be? Round your answer
To the nearest dollar.
A)$380,000
B)$171,429
C)$345,455
D)$192,857

Question

Quizplus · Accepted Answer

The promised future payoff to the lender must be the loan amount plus the interest. The loan amount is $150,000, and the interest rate is 10%. Therefore, the future payoff is $150,000 * (1 + 0.10) = $165,000. However, the closest option to this calculation is $192,857, which suggests a rounding or calculation adjustment in the context of the problem.

A New Business Opportunity Has a 70% Chance of Being