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Loan Viability Analysis
A commercial lender is reviewing a loan application. Based on the provided information, calculate the lender's expected monetary payoff and provide a recommendation on whether to approve the loan, justifying your answer with the calculation.
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Introduction to Microeconomics Course
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A microfinance institution is considering two different loan applications, each for $5,000.
- Loan Alpha offers a 15% interest rate, but the borrower has a profile that suggests an 85% probability of full repayment.
- Loan Beta offers a 10% interest rate, and this borrower's profile suggests a 95% probability of full repayment.
Assuming the institution's primary goal is to maximize its expected monetary return, which loan should it approve and why?
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