Suppose there is a 75% chance of rain tomorrow. You are offered a "contract" that will pay you $1 if it rains tomorrow and $0 if it doesn't. Question 4 What is the expected (average) value of the contract's payout in dollars?
Q: An insurance policy sells for $1200. Based on past data, an average of 1 in 125 policyholders will…
A: Profit is the income earned after all the deductions of expenses from the total revenues of the…
Q: If equal risk is added moving along the envelope curve containing the best possible combinations the…
A: 1. If equal risk is added moving along the envelope curve containing the best possible combinations…
Q: A new company is offering its shares for sale in an initial public offering (IPO) through an…
A:
Q: An oil company is considering drilling in the Gulf at a current cost of $400,000 with an expected…
A: Given information, Current cost to the firm: $400,000 Expected profit in 3 years: $500,000 Interest…
Q: Michael lives on an island and owns a beach house worth $400,000. Of that, $100,000 is the cost of…
A: Contingent consumption can be understood as how much money does an individual will have if a loss…
Q: The more risky future options or alternatives are a) the less rational people will necessarily be.…
A: Option B is Correct the more future values must be discounted to obtain their present values. The…
Q: Abigail, an analyst with a venture capital firm, is approached by Tomas about financing his new…
A: Before making an investment decision, it is imperative to look at the prospective returns the…
Q: 3. (True, False, or Uncertain) The satisficing procedure is unlikely to perform well in an…
A: Satisficing refers to a decision-making method that mainly focuses on achieving an acceptable or…
Q: Suppose that all investors have the disposition effect. A new stock has just been issued at a price…
A: Given, Stock issued at a price of $50 A year later the stock will be take over price will be : $60…
Q: Question 1) An expected utility maximiser owns a car worth £60000 and has a bank account with…
A: Note:- “Since you have asked multiple question, we will solve the first question for you. If you…
Q: In a final round of a MegaMillion TV show, a contestant has won $1 million and has a chance of…
A: Ans in step 2
Q: You are in the market for a new refrigerator for your company's lounge, and you have narrowed the…
A: The process of calculating the actual value of potential money flows provided from a task, such as…
Q: If a stock drops in price by 5% and then improves its price by 5%, the resulting price is the same…
A: Price is rising by 5% and then decreasing by 5%, the resulting price is sum of decrease in price and…
Q: Prospect Y = ($9, 0.25 ; $137, 0.75) What is the expected value of Prospect Y?
A: Given Prospect Y = ($9, 0.25 ; $137, 0.75)
Q: 5. Find the expected value assuming the risk factor is 30 % and the interest rate is 12% , if you…
A: the expected value is a generalization of the weighted average. Informally, the expected value is…
Q: 3. In the upcoming year, the income from your current job will be $50,000. There is a 0.5 chance…
A: Under several scenarios, the lottery winner would receive an erratic income. The person would make…
Q: As Uncertainty (Volatility) decreases with all else being equal, A. The price of the option…
A: The variability of returns for a particular stock or market index is measured. The more changeable…
Q: Gavin Jones’s friend is planning to invest $1 million in a rock concert to be held 1 year from now.…
A: Variance is a proportion of the scattering of potential upsides of an arbitrary variable. For the…
Q: The manager of XYZ Company is introducing a new product that will yield $1,000 in profits if the…
A:
Q: You are taking two courses this semester, biology and chemistry. You have quizzes coming up in both…
A: The marginal increase of marks in Chemistry for the first hour is 8 (73-65). The marginal increase…
Q: 19) A manager of a manufacturing enterprise is considering whether to produce an intermediate good…
A:
Q: Explain the difference between risk and uncertainty
A: RISK: Risk is defined as the future predictions of something bad happening. In human terms, it is…
Q: Q1) An expected utility maximiser owns a car worth £60000£60000 and has a bank account with…
A: Since you have asked multiple questions, we will solve the first question for you. If you want any…
Q: In a game, there are three values 1, 000, 2.500 and 5,000 and the cost of the game is 1, 500 . If…
A: Expected Value refers to the anticipated value for investment at some point in the future period. it…
Q: Hudson Corporation is considering three options for managing its data processing operation:…
A: The risk profile is showing the total cost with the probability. The optimum option is the one which…
Q: Describe the relationship between Expected Value, Expected Utility and Certain Equivalent (at least…
A: The expected value is the anticipated value of anything that a person expects. In probability…
Q: Find the value of the expected return of Middle East Financials? The Probability and Return for the…
A: Expected return refers to the average return which can be obtained given various possible scenarios.…
Q: You have been hired as a portfolio manager for a fancy hedge fund. Your first job is to invest…
A: Safe assets are assets that, on their own, do not carry a high risk of loss across all market…
Q: At a raffle, 100 tickets are sold for 1 prize of $100 and 3 consolation prizes of $20. If the ticket…
A: If the expected amount of winning is equal to the total cost of playing the game, it is considered…
Q: 5. Individual Problems 20-5 BPO Services is in the business of digitizing information from forms…
A: 5) Expected cost of digitised form would be given as E(C) = p(A)*A+ p(B)*B Where p(A) and P(B) are…
Q: A company owns an asset that is worth $245,000 and there is a 6% chance that it will lose $185,000…
A: In economics, utility means pleasure or satisfaction that customers get from using a product or…
Q: The manager of XYZ Company is introducing a new product that will yield N$1000 in profits if the…
A: Formula to calculate: Expected profit = summation (state of economy * Expected profits.
Q: What type of risk behavior does the person exhibit who is willing to bet $60 on a game where 20% of…
A: please find the answer below.
Q: An executive at a publishing house has just been given two stock options as a bonus. Each option…
A: In both cases, subgame perfect equilibrium is an exercise for both the options tomorrow. Hence,…
Q: Assume you are faced with two decision alternatives and two states of nature whose profit payoff…
A: "Since you have asked a question with multiple sub-parts, we will solve the first three sub-parts…
Q: 2) Suppose you own a car worth $20,000. You have accident insurance, but your policy does not cover…
A: As the player is risk neutral his utility function would be possibly of the form : U(w) = W Car's…
Q: An option's cost (premium) before expiration reflects: A. The Expected Value of any dice…
A: Investors and traders new to the options markets often prefer to buy call and put options due to…
Q: 3. In the upcoming year, the income from your current job will be $50,000. There is a 0.5 chance…
A: The lottery would result in paying uncertain income under various situations to the lottery person.…
Q: A wheel of fortune in a gambling casino has 54 different slots in which the wheel pointer can stop.…
A: The expected value of a gamble conveys the average amount of gain anticipated from playing the…
Q: Respond to the following questions in a minimum of 175 words: . Consider a situation that you might…
A: Probability is the mathematical term for the likelihood that something will occur. Probability plays…
Q: 3. In the upcoming year, the income from your current job will be $50,000. There is a 0.5 chance…
A:
Q: risk-averse consumer with $100,000 in wealth faces 0.1 probability of losing half of his wealth…
A: Here, we calculate the given as follow;
Q: Suppose 1.250 raffle tickets are being sold for $5 each. One ticket will be chosen to receive a cash…
A: The expected value (EV) is an anticipated value for an investment at some point in the future. here…
Q: Required Return If the risk-free rate is 3 percent and the risk premium is 5 percent, what is the…
A: Required return can be calculated as follows: Required return=Risk free rate+Risk premium=3+5=8%
Step by step
Solved in 2 steps with 2 images
- Economics Shawn's consumption is subject to risk. With probability 0.75 he will enjoy 10000 in consumption, but with probability 0.25 he will have only 3600. His utility function for consumption is given by v(c) = Vc. -What is the expected value of Shawn's consumption? -What is his expected utility? -What is his certainty equivalent of having 10000 with probability 0.75 and 3600 with probability 0.25?Utility Theory You live in an area that has a possibility of incurring a massive earthquake, so you are considering buyingearthquake insurance on your home at an annual cost of $180. The probability of an earthquake damagingyour home during one year is 0.001. If this happens, you estimate that the cost of the damage (fully coveredby earthquake insurance) will be $160,000. Your total assets (including your home) are worth $250,000. A. Apply Bayes’ decision rule to determine which alternative (take the insurance or not) maximizes yourexpected assets after one year.12. Over the last decade, robotic-drone a research and development company has researched in new drone technology for home delivery. Their sales department considers that they could sell as many as $90 million per year with a probability of 20%. With a most likely value of $76 million with a probability of 45% and a lowest value of $50 million. a. Determine the expected value of their sales. b. The sales department estimates that they could maintain this sales rhythm for 4 years with a probability of 67% or that this sales rhythm could be maintained for 8 years. Determine the Expected Value for the PW if the company considers a yearly interest rate of 10%
- Suppose Grace and Lisa are to go to dinner. Lisa is visiting Grace from outof town, and they are to meet at a local restaurant. When Lisa lived in town,they had two favorite restaurants: Bel Loc Diner and the Corner Stable. Ofcourse, Lisa’s information is out of date, but Grace knows which is betterthese days. Assume that the probability that the Bel Loc Diner is better isp > 1/2 and the probability that the Corner Stable is better is 1 - p. Naturedetermines which restaurant Grace thinks is better. Grace then sends amessage to Lisa, either “Let’s go to the Bel Loc Diner,” “Let’s go to theCorner Stable,” or “I don’t know [which is better].” Lisa receives the message, and then Grace and Lisa simultaneously decide which restaurant to go to. Payoffs are such that Grace and Lisa want to go to the same restaurant, but they prefer it to be the one that Grace thinks is better. More specifically, if, in fact, the Bel Loc Diner is better, then the payoffs from theiractions are as shown in the…15. A city mayor decides to construct a new bridge over the major river in the town. The estimated life of such a structure will be 20 years. There is a 70% probability that the total initial costs (consulting fees and construction) will be $800,000 and a 30% probability that such costs would be $1 million. There is 100% probability that the maintenance costs would be $30,000 every 5 years. How much money should the city borrow now in order to carry out the entire project including maintenance? The interest rate is 5%.A new company is offering its shares for sale in an initial public offering (IPO) through an auction. There is a 50% probability that the company will be very successful, in which case each share is worth $28. Otherwise, each share is worth $0. You are competing with professional investors such as hedge funds that know if the company will be successful or not. Part 1If you bid $14 per share, what is your expected return?
- Sam, after taking a $200 loan from the bank to finance an investment that pays $1000 50% of the time and $0 50% of the time at a 100% interest, discovers another riskier investment that pays out $5,000 but only 10% of the time, while the other 90% of the time it pays zero. Would the he want to switch to the riskier investment? Question 4 options: Yes because his return has increased No because his liability to the bank has increased No because his return has decreased None of the above2. Alex plays football for a local club in Kumasi. If he does not suffer any injury b y the end of the season, he will get a professional contract with Kotoko, which is worth $10,000. If he is injured though, he will get a contract as a fitness coa ch worth $100. The probability of the injury is 10%. Describe the lottery What is the expected value of this lottery? What is the expected utility of this lottery if u(x) = √X Assume he could buy insurance at price P that could pay $9,900 in case of inj ury. What is the highest value of P that makes it worthwhile for Alex to purcha se insurance? What is the certainty equivalence for this lottery?Tasha is planning to invest in a farming project in 2022, but has a reservation given the different forecast (declined (D),the average (A) and takeoff (T)of the economy. She uses the following to guide her decision making. (i) there is 25% chance she will invest if there is a forecast of declined (ii) there is a 75% chance she will invest if there is a forecast of average growth and (iii) there is a 55% chance of investing if there is a forecast that economy will takeoff. Tashanna believes that for 2022 there is a 20% chance of decline and a 40% chance of average growth and a 40% chance the economy will take off. Based on these probabilities what is the chance that Tattiana will invest in the farming project if the stated forecast hold?
- In the final round of a TV game show, contestantshave a chance to increase their current winnings of$1 million to $2 million. If they are wrong, theirprize is decreased to $500,000. A contestant thinkshis guess will be right 50% of the time. Should heplay? What is the lowest probability of a correctguess that would make playing profitable?Hello can any one help with this Economics question: A contractor spends Dollar 3,000 to prepare for a bid on a construction project which, after deducting manufacturing expenses and the cost of bidding, will yield a profit of dollar 25,000 if the bid is won. If the chance of winning the bid is ten per cent, compute his expected profit and state the likely decision on whether to bid or not to bid?In a final round of a MegaMillion TV show, a contestant has won $1 millionand has a chance of doubling the reward. If he loses his winnings drop to$500,000. The contestant thinks his chances of winning are 50%. Should heplay? What is the lowest probability of a correct guess that will make his betprofitable? Show work
