The default rate of Don's new customers has been running at 20 percent. The average sale for each new customer amounts to $500, generating a present value of profit of $200 and a 30 percent chance of a second order next year. The default rate on second orders is only 5 percent. If the interest rate is 6 percent, what is the expected profit from each new customer?
A)$152.50
B)$149.53
C)$275
D)$139.62

Question

Quizplus · Accepted Answer

The Answer of The default rate of Don's new customers has been running at 20 percent. The average sale for each new customer amounts to $500, generating a present value of profit of $200 and a 30 percent chance of a second order next year. The default rate on second orders is only 5 percent. If the interest rate is 6 percent, what is the expected profit from each new customer?
A)$152.50
B)$149.53
C)$275
D)$139.62

The Default Rate of Don's New Customers Has Been Running