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An individual is considering two investment projects. Project A will return a zero profit if conditions are poor, a profit of $4 if conditions are good, and a profit of $8 if conditions are excellent. Project B will return a profit of $2 if conditions are poor, a profit of $3 if conditions are good, and a proift of $4 if conditions are excellent. The probability distribution of condition is as follows:
Conditions: Poor Good Excellent
Probability: 40% 50% 10%
(a) Using excel, calculate the expected value of each project and identify the preferred project according to this criterion, (b) Assume that the individual's utility function for profit is U(X)= X-0.05X2. Calculate the expected utility of each project and identify the preferred project according to this criterion. (c) Is this individual risk averse, risk neutral, or risk seeking? Why?
In a large city it was found that summer electricity bills for single-family home followed a normal distribution with standard deviation $100. A random sample of 25 bills was taken. a. Find the probability that the sample standard deviation is less..
The price at point a is $70 and the price at point c is $10 per bag. The price at point d is $40 and the price at point e is $20 per bag. The price at point f is $32 and the price at point g is $4 per bag. Apply the formula for the area of a trian..
Helen just bought a house for $250,000. Earthquake insurance, which would pay $250,000 in the event of a major earthquake, is available for $25,000. Helen estimates that the probability of a major earthquake in the coming year is 10 percent, and t..
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How much does the economy have to grow (potential output is, 3.5% and the unemployment rate is 7.3%) in 2014 to bring the unemployment rate down to 5%? How much does it have to grow each year to bring the unemployment rate down to 5% by 2017.
A new gear grinding machine for composite materials has a first cost of P=$100,000 and can be used for a maximum of 3 years. Its salvage value is estimated by the relation S=P(0.85)n, where n is the number of years after purchase. The operating cost ..
Calculate the standard error of estimate and the standard error of Coefficient Standard error of estimate = Standard error of Coefficient = 4. Make a prediction of Y when X = 64. Prediction y= 5. Calculate a 95% prediction interval when X = 64. Pre..
Estimating equation through a correcting factor to correct heteroskedasticity may cause extra correlation to enter the model, which increase the R^2.
Suppose that the inverse demand for shale gas is given by p = 400 - 2q. The private marginal cost of producing shale gas is PMC = 100 + q. Suppose that in order to produce shale gas at the PMC given above, the oil and gas (O&G) companies (that pro..
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