Expected change in his bonus from taking this opportunity

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Reference no: EM13951002

Consider a trader who receives a bonus equal to 10% of all positive profit generated from trades (but is not charged a negative bonus when year-end cumulative profit is negative). Near the end of the year, at a time when he has generated $10 million in profits for his bank, the trader faces an opportunity that will generate $20 million in profits with 75% probability, but $100 million in losses with 25% probability. From the perspective of the trader, what is the expected change in his bonus from taking this opportunity?

Reference no: EM13951002

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