18 diegoispen05 a riskaverse b riskneutral c

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Unformatted text preview: ver the interval [p, p*]. Banks will make loans as long as r ≥ δ , where r is the interest rate charged on the loan. Potential loan applicants, however, will only take the loan if r ≤ δ . Assume asymmetric information. 17. For a given price, p [Pen. 0] A. average riskiness of potential loan applicants will be 0.5( p + p*) and only those loan applicants for whom δ ≥ 0.5( p + p*) will apply for a loan. B. average riskiness of potential loan applicants will be 0.5( p + p* ) and only those loan applicants for whom δ ≤ 0.5( p + p*) will apply for a loan C. average riskiness of potential loan applicants will be 0.5 p and only those loan applicants for whom 0.5( p + p*) ≤ δ ≤ p * will apply for a loan. D. average riskiness of potential loan applicants will be δ p and only those loan applicants for whom δ ≤ 0.5( p + p*) will apply for a loan. E. Abstain 10 Use the information that follows to answer questions 18, 19 and 20. Diego’s utility function is given by U (M ) = M 2 . Diego has an initial w...
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