Investors Al and Bea lend $100,000 to each new idea.Al's history is that he selects low-risk projects or ideas that hit 80% of the time.Bea's history is that she takes on high-risk projects that hit 40% of the time.What rate of return must each successful project pay Al and Bea for them to break even?

Question

Quizplus · Accepted Answer

For Al to break even, he needs to make $100,000 x 0.8 = $80,000 on successful projects.
Therefore, his rate of return needs to be $80,000/$100,000 = 0.8 or 80%.
For Bea to break even, she needs to make $100,000 x 0.4 = $40,000 on successful projects.
Therefore, her rate of return needs to be $40,000/$100,000 = 0.4 or 40%.
So the answer is C since Al's rate is 25%,and Bea's rate is 150%.

Investors Al and Bea Lend $100,000 to Each New Idea