For examples 1, you will consider a standard 4-year car loan of$10,000, with 6% APR compounded monthly. Payments are $234.85 permonth, assuming $0 down payment. All of our expected values arefrom the perspective of the bank offering the loan.
1)    [Scenarios] Consider people who pay for 2 years, thenstop…..
a)Ă‚Â Ă‚Â Ă‚Â Ă‚Â Ă‚Â Assume that the bank can recover an average of $2000 from therepossession process after 2 years.Ă‚Â Ă‚Â How much $ does thebank get back from these people total (in payments and repo $combined)?
b)Ă‚Â Ă‚Â Ă‚Â Ă‚Â If 10% ofpurchasers default after 2 years, and the rest pay in full, what isthe expected value of the loan for the bank?
c)Ă‚Â Ă‚Â Ă‚Â Ă‚Â Ă‚Â If 5%of car buyers make no payments at all, 10% default after 2 years,and the rest pay in full, what is the expected value of the loanfor the bank?
