Use the Following Information for Questions

Multiple Choice

Use the following information for questions
National Cleaner Corp.needs a $1.5 million loan to finance a project that pays off next period.There are two projects available, A and B.You are a lending officer and know about the projects but cannot control the borrower's project choice.A will yield a payoff of $6.75 million with probability 0.6 or zero with probability 0.4.B will pay off $8 million with probability 0.5 or zero with probability 0.5.Everybody is risk neutral and the riskless interest rate is 10%.You consider designing a loan contract that involves the use of collateral However, collateral is costly and $1 of the borrower's collateral is worth only 90 cents to your bank.
-Suppose a secured loan is offered.How much collateral should you ask the borrower round to the nearest decimals) ?

A) $1.41 million
B) $1.23 million
C) $0.87 million
D) $0.65 million
E) $0.50 million