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.
-Given that a secured loan is offered, what is the borrower's net expected payoff from choosing project A? Project B?

A) Project A = $0.09 million, Project B = $0.58 million
B) Project A = $2.34 million, Project B = $2.34 million
C) Project A = $2.34 million, Project B = $1.68 million
D) Project A = $0.58 million, Project B = $1.68 million
E) Project A = $1.68 million, Project B = $1.68 million