A new product may be a dud (20% probability), an average seller (70% probability), or dynamite (10% probability).
If it is a dud, the payoff will be $20,000; if it is an average seller, the payoff will be $40,000; if it is dynamite, the payoff will be $80,000. The appropriate expected rate of return is 6% per year.
If a loan promises to pay off $40,000, what are the promised and expected rates of return?