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f. Imagine the bank requires all borrowers to form groups of size two, charges all...

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Accounting

f. Imagine the bank requires all borrowers to form groups of size two, charges all borrowers a direct interest rate of 15% (r = 15%), and requires a bailout payment from all successful borrowers of 75% of the principal of that borrowers partner when the partner fails (b = 75%). Calculate the effective interest rate for each of the two project risk levels in part d., assuming borrowers choose projects of the same risk. How does the effective interest rate vary by risk?

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