Risk assessment, Risk Management

Assignment Help:

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?


Related Discussions:- Risk assessment

Risk Management project, Imagine you are the Chief Risk Officer of a newly-...

Imagine you are the Chief Risk Officer of a newly-formed bank, with a focus on corporate lending in Slovakia. The bank is largely funded by local deposits. The CEO (and so does t

Define risk analysis, RISK ANALYSIS: THE NEW  PARADIGM  IN FOOD SAFETY  ASS...

RISK ANALYSIS: THE NEW  PARADIGM  IN FOOD SAFETY  ASSURANCE   In  the  early  part  of  the  20th  Century, safety  concerns  led  to  the development of performance  criteria

Define value at risk as a measure of market risk, Black Rock Investors is ...

Black Rock Investors is managing the pension fund of Virgin Atlantic. Sir Richard Branson wants to assess the risk of the portfolio following the Euro crisis. During a discussion

Request for your service.., I am a university student, and for a project as...

I am a university student, and for a project assignment to be completed, my team is going to write a business plan and a compliance Manuel for stock brokers and investment advisors

Trade Finance and Risk, The risks in the transaction seem to be very broad ...

The risks in the transaction seem to be very broad and encompassing. Can Engineering Tech effectively protect its interests and assure payment?

Risk free assets, Risk free assets is one for which there is no uncertainty...

Risk free assets is one for which there is no uncertainty in its expected rate of return and hence the standard deviation of such return is zero. Generally the expected rate of ris

Develop strategies to eliminate risk, Develop strategies to eliminate, miti...

Develop strategies to eliminate, mitigate, deflect or accept risk • Risk treatment strategies: Risk avoidance, reduction, transfer and retention • The types of controls that can

Hi, ashjadsgdjhs

ashjadsgdjhs

Determine a process to managing risk, Determine a process to managing risk ...

Determine a process to managing risk 1.  Risk committee set up to address risk issues identified for example regular risk audits, to identify and estimate likelihood and conseq

Utility theory, While uncertain, they have estimated the net revenue from t...

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

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd