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- A man purchased a $22,500, 1-yr term-life insurance policy for $695. Assuming that the probability that he will live for another year is 0.995, find the company's expected gain. (Round your answer to the nearest cent.) $Please explain in detail about expected utility to get a positive upvote. An individual has a utility function U = W¼, where W is her total wealth. She has one safe asset worth Rs 5,000, and another risky asset whose value can be either Rs 5,000 or Rs 1,400 with equal probabilities. What is her expected utility? (a) Rs 11,400 (b) Rs 100 aw lo boeoqmoo vmonoos to on g cubire cou s o iva alagos ad a adWnooni lanou lo OAuti (c) Rs 2,580 (d) Rs 90Suppose an asset has a return of $416 with probability of 85% and a return of $980 with probability 15%. What is the expected return (i.e. expected value) of the asset? а. b. If a risk averse person were given a choice between the above gamble and $400 guaranteed, which one would they pick?
- Suppose an investor is concerned about a business choice in which there are three prospects; the probability and returns are given below: Probability 0.5 0.3 0.2 The expected value of the uncertain investment is $ dollar.) Return $110 30 - 30 (Round your answer to the nearestSuppose an investor is concerned about a business choice in which there are three projects, the probability and returns are given below. Probability Return 0.4 $100 0.4 40 The expected value of the uncertain investment is $ ----------- (round off to the nearest dollar.Guy Fieri has purchased a significant plot of land in Northwest Ohio for his newest venture: FlavorTownship. This hub for mind-boggling flavor and entertainment is a strictly for-profit operation. Guy would like to keep Flavor Township open all year-round, but due to Ohio weather the following are the probabilities of when it will be open: |- 30% chance it is open 300 days a year |- 55% chance it is open 325 days a year |- 15% chance it is open 350 days a year Flavor Township will expect to host 14,000 people each day that it is open and expects an average revenue of $45 per visitor. This paradigm-shifting landmark will cost $420,000,000 to start the investment and will require annual costs (food, employees, etc.) of $115,000,000. Every 3 years, Flavor Township will undergo necessary maintenance that will cost $22,000,000. If the expected life of Flavor Township is 15 years and a 16% return is expected, what is the expected NPV of this project?
- 2 Consider the two investments listed below with possible outcomes and probabilities: INVESTMENT (in $1000) 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+ b) a) Suppose I have utility function U(*) = (x)2. What is the expected utility from each investment? Which investment will I choose, if any? Show and explain your work and provide the intuition. c) What is the value of the risk premium for the SAFE investment? Show and explain your work and provide the intuition. d) What is the value of the risk premium for the RISKY investment? Show and explain your work and provide the intuition.< +9) A risk-neutral individual with current wealth w has already decided investing all his wealth in a project that has two possible net wealth outcomes wn and we (with probabilities pr and pe, respectively) where wr > w > we > 0, PrPe E (0,1), and pr + Pe = 1. Before he invests, he realises that there is a source of information that tells the individual which outcome will be realised with truth, what is the value of this information for the individual? a) pe(@ – w;), b) (Pn – Pe)w, c) Phwn + PeWe – w, d) Pr(w – wn).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%
- Mr Phiri has K10,000 in his account. He is considering investing in a project which has 70 % probability of earning a profit of K10,000 and a 30% probability of incurring a loss of K10,000. His utility at the moment is 20 utiles with the current K10,000. With K20, 000 his utility would be 25 utiles and with K0 his utility would be zero.a) What is the expected profit of the project? b) What is the expected marginal utility of the project? Is Mr Phiri likely to invest in the project? Mr Sinkala also has K10,000 from which he derives 20 utiles. However, Mr Phiri derives 15 utiles from the profit of K10,000.c) What is the expected marginal utility for Mr Sinkala? d) How can you describe Mr Phiri and Mr Sinkala in terms of their attitude towards risk?Mr Phiri has K10,000 in his account. He is considering investing in a project which has 70 % probability of earning a profit of K10,000 and a 30% probability of incurring a loss of K10,000. His utility at the moment is 20 utiles with the current K10,000. With K20, 000 his utility would be 25 utiles and with K0 his utility would be zero. a) What is the expected profit of the project? b) What is the expected marginal utility of the project? Is Mr Phiri likely to invest in the project? Mr Sinkala also has K10,000 from which he derives 20 utiles. However, Mr Phiri derives 15 utiles from the profit of K10,000. c) What is the expected marginal utility for Mr Sinkala? d) How can you describe Mr Phiri and Mr Sinkala in terms of their attitude towards risk?An investment plan allows investors to deposit a minimum of £1,000 at the beginning of the term, which pays a fixed return rate of 5% per annum. Af- ter a year, investors have to deposit a minimum of £800 with an expected return rate of 3% per annum for the second year and a standard deviation of 2% per annum. a. Find the expected value of the total minimum amount earned after two years of investment. b. Find the standard deviation of the total minimum amount earned after two years of investment.
