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2. Consider the model of Monitoring and Reputation in Freixas and Rochet 2.5.2 where there are two periods and two types of firms;a proportion f are strategic firms who can choose either project G or project B. Project G has the probability of success TG. and Project B has the probability of success TB.A proportion 1-f are non-strategic firms who always choose project B. Monitoring by banks only stops strategic firms from choosing B (it doesn't stop non-strategic firms). Financial markets cannot distinguish strategic from non-strategic firms but can distinguish successful from unsuccessful firms in period 2. Investors in the financial market are risk neutral and require an expected return equal to the riskless rate of interest which is zero (i.e. so that investors get their money back) Suppose that parameters are: - TG = ,G = 2, TB = ,B = ,f = 8 = 0.5 and C = %3D What is the probability a successful firm in period 1 is a strategic firm? A. B. 7 C. D. 7 E. None of A-D

2. Consider the model of Monitoring and Reputation in Freixas and Rochet 2.5.2 where there are two periods and two types of firms;a proportion f are strategic firms who can choose either project G or project B. Project G has the probability of success TG. and Project B has the probability of success TB.A proportion 1-f are non-strategic firms who always choose project B. Monitoring by banks only stops strategic firms from choosing B (it doesn't stop non-strategic firms). Financial markets cannot distinguish strategic from non-strategic firms but can distinguish successful from unsuccessful firms in period 2. Investors in the financial market are risk neutral and require an expected return equal to the riskless rate of interest which is zero (i.e. so that investors get their money back) Suppose that parameters are: - TG = ,G = 2, TB = ,B = ,f = 8 = 0.5 and C = %3D What is the probability a successful firm in period 1 is a strategic firm? A. B. 7 C. D. 7 E. None of A-D

A First Course in Probability (10th Edition)
A First Course in Probability (10th Edition)
10th Edition
ISBN:9780134753119
Author:Sheldon Ross
Publisher:Sheldon Ross
Chapter1: Combinatorial Analysis
Section: Chapter Questions
Problem 1.1P: a. How many different 7-place license plates are possible if the first 2 places are for letters and...
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2. Consider the model of Monitoring and Reputation in Freixas and Rochet 2.5.2 where there are two periods and two types of firms;a proportion f are strategic firms who can choose either project G or project B. Project G has the probability of success TG. and Project B has the probability of success Tg.A proportion 1- f are non-strategic firms who always choose project B. Monitoring by banks only stops strategic firms from choosing B (it doesn't stop non-strategic firms). Financial markets cannot distinguish strategic from non-strategic firms but can distinguish successful from unsuccessful firms in period 2. Investors in the financial market are risk neutral and require an expected return equal to the riskless rate of interest which is zero (i.e. so that investors get their money back) Suppose that parameters are: - TC =1,G = 2, TB = },B = },f = { 8 = 0.5 and C 1 20 What is the probability a successful firm in period 1 is a strategic firm? A. 을 C. E. None of A-D B.
Transcribed Image Text:2. Consider the model of Monitoring and Reputation in Freixas and Rochet 2.5.2 where there are two periods and two types of firms;a proportion f are strategic firms who can choose either project G or project B. Project G has the probability of success TG. and Project B has the probability of success Tg.A proportion 1- f are non-strategic firms who always choose project B. Monitoring by banks only stops strategic firms from choosing B (it doesn't stop non-strategic firms). Financial markets cannot distinguish strategic from non-strategic firms but can distinguish successful from unsuccessful firms in period 2. Investors in the financial market are risk neutral and require an expected return equal to the riskless rate of interest which is zero (i.e. so that investors get their money back) Suppose that parameters are: - TC =1,G = 2, TB = },B = },f = { 8 = 0.5 and C 1 20 What is the probability a successful firm in period 1 is a strategic firm? A. 을 C. E. None of A-D B.
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