/biz/ - Business & Finance

Can someone fucking explain this to me please? I'm probably being a retard but it's 4.49AM and I'm feeling fried. It's about face value of unmonitored debt but anyone with a mathematical brain should be able to help me.

"Suppose f=1 (f being face value). When v (expected returns) = 1, the borrower pays 1 as paying less would result in liquidation. When v = 1.4 the borrowers pays 1 and keeps 0.4 for himself. This implies that with face value 1, the lender gets 1 for sure, which is less than 1.05 and not acceptable.

Any face value of debt between 1 and 1.4 forces the the borrower into liquidation when the project returns 1 but is paid in full when the project returns 1.4. This gives the lender an expected return of 0.8f, because nothing is received when there is liquidation.

>this gives the lender an expected return of 0.8f, because nothing is received when there is liquidation

WHERE THE FUCK HAVE THEY PLUCKED 0.8f FROM. this is literally all that's holding me back on this fucking assignment

tl;dr try and solve greentext

pic somewhat related

Let's have a thread about the most important man in terms of business and economics