Alice lends $200,000 for each new idea.Alice's history is that she selects low-risk projects or ideas that hit 50% of the time.What rate of return must each successful project pay Alice for her to break even?
A)0%
B)50%
C)100%
D)200%

Question

Quizplus · Accepted Answer

Since Alice selects low-risk projects or ideas that hit 50% of the time, we can assume that half of the projects will be successful and half will fail. In order to break even, Alice needs to earn back the $200,000 she lent for each new idea.

If a project is successful, Alice needs to earn $200,000 in profit to break even. Since Alice lent $200,000 and needs to earn $200,000 in profit, the rate of return must be 100%. Therefore, the answer is C) 100%.

Alice Lends $200,000 for Each New Idea