Risk assessment, Risk Management

Scottie is a professional basketball player who plans to play for three more years.  During the summer, he has been offered two different contracts by his current team.  The first is a three-year guaranteed contract (meaning he gets paid even if he is injured or cut from the team) that would pay him $5 million per year.  The second contract is a one-year guaranteed contract that would pay him $3 million, after which he could become a "free agent" and negotiate his next contract with any team in the league.  Scottie, being a good business person, has commissioned a detailed statistical study of past basketball performances by similar players, and concluded that, if he accepts the one-year contract:

i.    There is a 25% chance that he will be injured during the upcoming season and will never play again; and

ii.   There is a 75% chance that he will play well enough this upcoming year to receive a two-year guaranteed contract for $7 million per year.

Scottie decides to accept the one-year contract.

a. What do you know about his risk preferences, given the choice that he has made?  Explain how you know this both in words and by using a utility of wealth graph similar to the one used in class.

b. What can you say for sure about the relative magnitude of Scottie's certainty equivalent?

Posted Date: 2/25/2013 2:13:24 AM | Location : United States







Related Discussions:- Risk assessment, Assignment Help, Ask Question on Risk assessment, Get Answer, Expert's Help, Risk assessment Discussions

Write discussion on Risk assessment
Your posts are moderated
Related Questions

An insurance company is investigating offering kidnap and ransom insurance. Policies are to be sold to multinational companies to provide cover for certain named employees who are


Q. Show Quick and regular returns of the investments? Quick and regular returns of the investments: every investor wants a quick and regular returns on his investment sufficienc

challenges for risk management

Q. What is Material Safety Data Sheet ? 1. Material Safety Data Sheet is a formal document containing important information about the characteristics and actual or potential ha

The general principles  of risk management are: A) Management  to  follow a structured approach B) Protection of human health as the primary consideration in risk management

Q. Show Security market line? The CML represent the equilibrium relation between the expected return and standard for efficient portfolio. But it does not indicate how individu

While uncertain, they have estimated the net revenue from this patent to have the proba- bility distribution, ??(??) = ?? ??????(-????) in which ?? = 0.05 and x=million dollars (x

what are the risk management in an asset register that is not updated on a timely basis