George lends $200,000 for each new idea. George's history is that he selects low-risk projects or ideas that hit 80% of the time. What rate of return must each successful project pay George for him to break even?
A) 20.50%
B) 22.00%
C) 23.50%
D) 25.00%
Answer: D
Explanation: D) With George's rate of success, we know that eight out of ten projects are successful and that George is repaid the loan eight out of ten times. Therefore, we must get enough funding from the eight successful projects to cover all ten projects. So if he makes ten loans of $200,000 each, he needs to recover $2,000,000 from the eight successful projects. Thus, each successful project must repay
= $250,000. Therefore, the loan "return" rate on each successful project must be: = 25%.
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All of the following statements about current assumption whole life insurance are true EXCEPT
A) It is a form of participating whole life insurance that pays annual dividends. B) An accumulation account is credited with an interest rate based on present market conditions and company experience. C) Under the low-premium version, the premium is subject to change after an initial guaranteed period. D) Under the high-premium version, the premium may be discontinued after a period of time.
Ann is considering the purchase of a life insurance policy with these characteristics:
flexible premium payments, the insurance and savings components are separate, the interest rate credited to the cash value is tied to a changing market interest rate but a minimum interest rate is guaranteed, and a monthly administrative fee is charged. Ann is considering buying A) whole life insurance. B) variable life insurance. C) universal life insurance. D) current assumption whole life.