A Lender Has to Decide Whether to Extend a $100

Multiple Choice

A lender has to decide whether to extend a $100 loan in exchange for a promise by the borrower to repay the loan and 10 percent simple interest in one year. The borrower plans to invest the proceeds of the loan with a certain 11 percent rate of return. The lender believes there is a 95 percent chance that the loan will be repaid. If the lender moves first, the subgame perfect equilibrium for this game is:

A) {Lend 6 Repay}.
B) {Lend 6 Default}.
C) {Not lend}.
D) This is a dynamic game with incomplete information and does not have a unique subgame perfect equilibrium.