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Cameron is an investor trying to decide among the following three different investment options. Option A: Price today: $1000 One year from today Cameron will receive one of the following payments: $1,250 with a probability of 90% $1,000 with a probability of 8% $0 with a probability of 2% Option B: Price today: $1000 One year from today Cameron will receive one of the following payments: $4,000 with a probability of 30% $1,000 with a probability of 50% $0 with a probability of 20% Option C: Price today: $1000 One year from today Cameron will receive one of the following payments: $2,000 with a probability of 33% $1,000 with a probability of 34% $0 with a probability of 33%
a. What is the expected value (payment) of each of the options at the end of the year?
b. Which of the options has the highest risk? Why?
c. If Cameron is a risk neutral inventor, which option will be selected? d. How would your answer change if Cameron is a risk adverse investor?
A friend was left $50,000 by his uncle. He has decided to put it into a saving account for the next year or so. He finds there are varying interest rates at savings institution: 4.375 % compounded annually, 4.25% compounded quarterly, and 4.125% co..
A Jamaican music executive leaves Kingston for New York to promote a reggae concert tour. He exchanges 100,000 Jamaican dollars for American dollars ($104 Jamaican = $1.00 US). After his stay in New York, he has to head to Tokyo (a reggae-crazy c..
The construction of a dam will cost $1,000 at time 0, $500 in year 1, $500 in year 2. It will be completed at the end of year 2. Beginning in year 3, maintenance costs will be $100 per year through year 10. From years 11 on, maintenance costs will..
Natural real GDP grows by 3 percent per year over the next five years, but then grows by 4 percent in the second year, 5.5 percent in the third year, 4.2 percent in the fourth year, and 3.5 percent in the fifth year. Calculate the cumulative loss..
When the price of oranges increases from $1.00 per pound to $1.50 per pound, quantity demanded falls from 500 pounds to 400 pounds. Calculate the price elasticity of demand. Is the demand for oranges price elastic, inelastic, or unit elastic.
If a random sample of 400 customers is selected, what is the probability of Type I error using this decision rule?
Ajax, Inc. is a monopolist. The estimated demand function for its product is Qd = 120 - 0.8P + 12Y + 4A Where Qd denotes quantity demanded, P denotes price, Y denotes personal income (in thousands of dollars), and A denotes advertising expenditures
A friend of yours just bought a new spots car with a $5,000 down payment, and her $30,000 car loan is financed at an interest rate of 0.75% per month for 48 months. After 2 years, the "blue book" value of her vehicle in the used-car mark..
quantity price/dollars total revenue total variable costs dollars total cost dollars 0 22 0 0 50 20 20 16 66 2 19 38 3 18 54 45 95 4 17 68 59 109 5 16 80 75 125 6 15 90 93 143 7 14 98 112 162 8 13 104 140 190 9 12 108 180 230 10 11 110 230 280
Wood products industry officials now claim that major mill closures over noneconomic issues occur at a rate of one every six months. Assume that this rate is accurate. a. Find the probability that no major mill closures will occur during a given ye..
Atlanta, Baltimore, Chicago, Denver, St. Louis, and Fort Lauderdale. Based on the pie's apparent success, the company is considering a nationwide launch. Before doing so, it has decided to use data collected during a two-year market test.
In an effort to make gasoline more affordable for our population, the US government mandates that gasoline be priced at $3 per gallon, while the market price at present is $4 per gallon. What impact will this policy have on gasoline sales.
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