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A bank faces two types of borrowers, type A and B. Both want a $225 loan. Type A repays the loan 100% of the time and type B only repays with...
A bank faces two types of borrowers, type A and B. Both want a $225 loan. Type A repays the loan 100% of the time and type B only repays with probability 0.66. The bank doesn't observe type, but believes fraction x is type A. What does x need to be so that the bank can afford a pooling interest rate of 25%?
A) 0.51
B) 0.47
C) 0.41
D) 0.36