18 diegoispen05 a riskaverse b riskneutral c

Info iconThis preview shows page 1. Sign up to view the full content.

View Full Document Right Arrow Icon
This is the end of the preview. Sign up to access the rest of the document.

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...
View Full Document

This note was uploaded on 05/23/2011 for the course ECON 203 taught by Professor Jules during the Spring '11 term at University of Cape Town.

Ask a homework question - tutors are online