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BankOne issues $120 loans to borrowers and there are two types of borrowers. Type A repays...

BankOne issues $120 loans to borrowers and there are two types of borrowers. Type A repays the loan 96% of the time, but type B only repays 86% of the time. In this case, at the competitive interest rates, type A must make a repayment of ____ and type B repays ____. Please explain, thank you!

A) $131; $170

B) $131; $155

C) $125; $136

D) $125; $140

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Answer #1

Solution -

Loan amount =$120

Type A borrower make repayment of 120/0.96= $125

Type B borrower make repayment of 120/0.86= $140

Option D is correct i.e. $125, $140

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