Entrepreneur expected payoff from taking out loan


An entrepreneur needs a $500 loan to invest in a risky project. The project will produce revenue of $750 with probabilitiy 0.9 and revenue of $0 otherwise. The bank has a required loan repayment of $575, and if revenue is zero, the bank collects collateral of $100. What is the entrepreneur's expected payoff from taking out the loan?

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Finance Basics: Entrepreneur expected payoff from taking out loan
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