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Consider an investor with utility given U = √ π where π is net cashflow (“profits”). This investor is facing a one-year investment opportunity that will have a net cashflow next year of either 50 or 150. These will happen with probability 0.2 and 0.8, respectively. Be sure to show your calculations when working out your answers to the questions below:
(a) What is the expected value of the investment?
(b) What is the maximum the investor will pay to take part in this investment? Explain why it is different from expected value of the investment (question a).
(c) What is the maximum the investor is willing to pay if the investor’s utility function instead is: U = π 1/4 (remember that √ π is the same as π 1/2 ) Explain.
If an organization was performing poorly and henrifayol was cooled in as a consultant, what would he mostly likely suggest to improve things?
Lisa is interested in purchasing 1,000 shares of TJH, Inc. when the shares are issued. Her broker just gave Lisa a preliminary prospectus on these shares for her to review as she waits for the shares to be cleared for sale. What is the name of this p..
One year ago you bought Superior stock for $83.00 per share. What is your dollar return for the past year? What is the capital gains yield?
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Mr. Bill S Preston, Esq., purchase a new house for $90,000. He paid $10,000 upfront and agreed to pay the rest over the next 30 years in 30 equal annual payments that include principal payments plus 14 percent composed interest on the unpaid balance...
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The ABC Auto Service Center currently employs 5 technicians. With this crew, they can process 100 customers per day. The hourly wage rate for the technicians is $25: the overhead cost is 2 times the labor cost, and materials cost is $5 per customer, ..
If other equivalent firms are offering investors expected rates of return of 10%, what is the PV of the tax savings from financing the project with a mortgage?
Cindy borrows 13,500 for 12 years at an annual effective interest rate of i. She accumulates the amount necessary to repay the loan by a sinking fund. Cindy makes 12 payments of P at the end of each year, which includes payment on the loan at an annu..
A perpetual bond pays a coupon of $25 per year. If in year 1 this bond sells for $200, what is its yield to maturity?
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