Q. Suppose a bank is faced with two types of borrowers (a high risk borrower that should be charged an interest rate of 9% and a low risk borrower that should be charged an interest rate of 4%).  re is a 30% chance of getting a high risk borrower and a 70% chance of getting a low risk one.   Illustrate what is expected interest rate that will be charged by a bank that cannot exactly distinguish between two types but knows probabilities of each type.   In this market for loans illustrates what would be result?