Consider A Financial Instituion Which Currently Has 20 Aud In Default Free Long

140 30%

The financial institution has 50 AUD in insured deposits on the balance sheet and 40 AUD in uninsured deposits. The equity value is 10 AUD.

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a) Calculate the expected repayment for both investment options.

b) Which investment decision maximizes the shareholder value?

c) Which investment decision maximizes the value of the uninsured deposits?

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d) For each of the two investment options, what is the fair deposit insurance premium (premium = expected payment of the insurance)? 

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