Answer Happy

The rate is fixed for all loans made under this program, but thebank has the discretion whether or not to approve a particularloan. Steve, a loan officer at the Bank, is reviewing anapplication under this program from Cat, a small business owner. IfCat repays the loan as per the terms of the loan, the Bank willearn a profit of $15,000. (All earnings are reported as presentvalues.) However, if Catdefaults on the loan, the Bank willlose $10,000. Based on a quick examination of Cat’sapplication, Steve assesses Cat’s likelihood of default at5%.
Steve can either issue a quick decision to approve or deny theloan or send Cat’s application to Credit Services Inc., a firmthat conducts in-depth credit analysis and issues a rating of ”A”,”B” or ”C” for the prospective borrower. Each application sent toCredit Services costs the Bank $2,000. Historically, the defaultrates for Credit Services’ three rating categories have been asfollows:
Steve believes that if she sends Cat’s case to CreditServices, there is a 40% chance that he will get an ”A” rating, a50% chance that he will get a ”B” rating, and a 10% chance that hewill get a ”C” rating.
A) Structure Steve's problem as a decision tree. Draw this treeby hand (or electronically) and include it along with yoursubmission.