I recently had an interview with OW and was given this case. Needless to say, I did not solve it adequately. Can anyone help...? :
You are a new investmend fund and raised a mere $100, and you want to focus on retail/consumer lending. You're objective is to get a 20% return on your initial $100 capital via lending. You know that 90% of your customer base will pay back the full amount + interest. While 10% of your customers will default on their loan and pay only 20% in interest. What interest price should you charge in order to guarantee a 20% return on your $100?
Any help would be truly appreciated!
Could you maybe elaborate, how you solved the equation? I don't arrive at the same result as you do
0.9(1+x) + 0.1(0.2) = 1.2 => 0.9 +0.9x + 0.02 = 1.2 => 0.9x = 1.2-0.92 => 0.9x = 0.28 => x = 0.28/0.9 = 0.3111
(edited)