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Which decision rule is most concerned with downside risk?
A) Expected monetary value
B) Maximax
C) Maximin
D) None of the above
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- 1 Consider the two investments listed below with possible outcomes and probabilities: INVESTMENT (in $1000) P SAFE RISKY INVESTMENT AMOUNT 40+ 40+ GOOD SCENARIO OUTCOME 45+ 80+ AVERAGE+ SCENARIO PROB+ OUTCOME 0.40+ 0.40 42+ 45 BAD+ SCENARIO PROB OUTCOME PROB 0.20 35+ 0.20 10 0.40€ 0.40 a) What are the expected payoffs (E(x)) and standard deviations for each investment? b) Suppose I have utility function U(*) = √(x). What is the expected utility from each investment? c) Which investment will I choose, if any? Show and explain your work and provide the intuition.< d) What is the value of the risk premium for the SAFE investment? Show and explain your work and provide the intuition. e) What is the value of the risk premium for the RISKY investment? Show and explain your work and provide the intuition.< 43 A ✔ →What will be Hale’s TV Production’s decision based on the following criteria:a. MAXIMAXb. MAXIMINc. MINIMAX REGRETd. EXPECTED VALUEe. Construct the decision tree for this problem and indicate the decision based onthe decision tree analysis.NewTech wants to consider risk and return in evaluating the following alternatives: c. What alternative will you choose based onc.1 MAXIMAX?c.2 MAXIMIN?c.3 MINIMAX REGRET?
- 1. In a one-period model, the share price starts at $12 and in one year's time is either $24 or $6. Simple interest on USD is 20% per year. (a) Construct a replicating portfolio for a one year call option with strike K = $15. (b) Explain how The Law of One Price allows you to calculate the pre- mium of the call option. (c) Construct risk-neutral probabilities for the model for the share price and verify the risk-neutral value for the call option is the same as the value given by the replicating portfolio. |3Da) There is possibility of risk occurrence even when risk reduction techniques are n place. How will deal with this scenario and how will you justify cost-effectiveness of a risk reduction technique? b) Identify the schedules that are used on daily basis for the control and management of the project.Agamble based on a fair coin toss which pays $6.65 if the coin lands heads and $9.85 if the coin lands tails. (fair coin toss i.e. probability of heads is 50% = probability of tails is 50%) EV $8.25 E[U(w)) UJEV] >_U(EV) Low EU = U(EV) Neutral EU =_U(EV) Neutral u(w) w" 624.81 $ 561.51 u(w) 125+w 136.25 $ 136.25 u(w) Sin(w) 10.50 $ 10.50 Arisk agent, whose utility is given by U(w) = 5In(W) and initial wealth is $5,000 is faced with a potential loss of $3,800 with a probability of p=0.17. What is the maximum premium they would be willing to pay to protect themselves against this loss? risk appetite (wייט EV intial wealth EU 41.37 5,000 U(w-y) = E[U(w)] 5In(5,000-y)=B17 find y y= $ 1,077.13 If you are given the opportunity to buy insurance for $500 alt y= would you take the insurance? Utility functions w>0 u(w) w-9w u(w) 5In(w) u'(w) u'(w) u"(w) u"(w) A'(w) :>,,,,<=0 show your work A(w) Alw) A'(w) A'(w) R(w) R(w) R'(w) R'(w)
- Determine the two best decision alternatives by a conservative decision maker. Decision dl d2 d3 d4 d1 and d4 -350 d2 and d3 d3 and d4 sl States of Nature 900 d1 and d2 d1 and d3 500 700 750 -380 210 -360 $3 1100 600 -370 700when does a porfolio have the best risk/return characteristics ?What is risk selection and discuss any 2 methods that can be used to eliminate this.
- Please explain correct and incorrect answer P.S. It is not just Option C. Note:- Do not provide handwritten solution. Maintain accuracy and quality in your answer. Take care of plagiarism. Answer completely. You will get up vote for sure.Once sales are forecasted, O a cash budget O an operating budget a production plan a pro forma statement must be generated to estimate required raw materials.Determine whether or not to stock a large supply of steel. There is uncertainty in the price of steel. Based on past history the following data are available Price (future) Prob (Price) PW if stocked PW if not stocked High 0.3 100000 0 Medium 0.5 -10000 0 Low 0.2 -50000 0 What is the probability that stocking steel will result in a negative present worth (PW)?