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A decision maker faces an uncertain venture where he/she may earn $10.000 (with a probability p) or nothing. Following mutually exclusive options to this uncertain venture are listed below. The decision maker's statements are given following each option: • A certain venture that will bring $3.000 at the end of one year. "I will invest my money to this certain venture unless there's a 50% chance of winning the $10.000" • A certain venture that will bring $5.000 at the end of one year. "I will invest my money to this certain venture unless there's a 75% chance of winning the $10.000" • A certain venture that will bring $7.000 at the end of one year. "I will invest my money to this certain venture unless there's a 88% chance of winning the $10.000" • A certain venture that will bring $9.000 at the end of one year. "I will invest my money to this certain venture unless there's a 97% chance of winning the $10.000" On the other hand if the utility values for $10.000 and $0 are 1 and 0.1 respectively. 1. Calculate the utility values for $3.000, $5.000, $7.000 and $9.000. 2. Represent these values including that of $0 and $10.000 on a graph (the utility curve) 3. Is this decision maker a risk seeker or risk averse type person? Why? (With a maximum of 50 words!)

A decision maker faces an uncertain venture where he/she may earn $10.000 (with a probability p) or nothing. Following mutually exclusive options to this uncertain venture are listed below. The decision maker's statements are given following each option: • A certain venture that will bring $3.000 at the end of one year. "I will invest my money to this certain venture unless there's a 50% chance of winning the $10.000" • A certain venture that will bring $5.000 at the end of one year. "I will invest my money to this certain venture unless there's a 75% chance of winning the $10.000" • A certain venture that will bring $7.000 at the end of one year. "I will invest my money to this certain venture unless there's a 88% chance of winning the $10.000" • A certain venture that will bring $9.000 at the end of one year. "I will invest my money to this certain venture unless there's a 97% chance of winning the $10.000" On the other hand if the utility values for $10.000 and $0 are 1 and 0.1 respectively. 1. Calculate the utility values for $3.000, $5.000, $7.000 and $9.000. 2. Represent these values including that of $0 and $10.000 on a graph (the utility curve) 3. Is this decision maker a risk seeker or risk averse type person? Why? (With a maximum of 50 words!)

Entrepreneurial Finance
Entrepreneurial Finance
6th Edition
ISBN:9781337635653
Author:Leach
Publisher:Leach
Chapter11: Venture Capital Valuation Methods
Section: Chapter Questions
Problem 1dM
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A decision maker faces an uncertain venture where he/she may earn $10.000 (with a probability p) or nothing. Following mutually exclusive options to this uncertain venture are listed below. The decision maker's statements are given following each option: • A certain venture that will bring $3.000 at the end of one year. "I will invest my money to this certain venture unless there's a 50% chance of winning the $10.000" • A certain venture that will bring $5.000 at the end of one year. "I will invest my money to this certain venture unless there's a 75% chance of winning the $10.000" • A certain venture that will bring $7.000 at the end of one year. "1 will invest my money to this certain venture unless there's a 88% chance of winning the $10.000" • A certain venture that will bring $9.000 at the end of one year. "1 will invest my money to this certain venture unless there's a 97% chance of winning the $10.000" On the other hand if the utility values for $10.000 and $0 are 1 and 0.1 respectively. 1. Calculate the utility values for $3.000, $5.000, $7.000 and $9.000. 2. Represent these values including that of $0 and $10.000 on a graph (the utility curve) 3. Is this decision maker a risk seeker or risk averse type person? Why? (With a maximum of 50 words!)
Transcribed Image Text:A decision maker faces an uncertain venture where he/she may earn $10.000 (with a probability p) or nothing. Following mutually exclusive options to this uncertain venture are listed below. The decision maker's statements are given following each option: • A certain venture that will bring $3.000 at the end of one year. "I will invest my money to this certain venture unless there's a 50% chance of winning the $10.000" • A certain venture that will bring $5.000 at the end of one year. "I will invest my money to this certain venture unless there's a 75% chance of winning the $10.000" • A certain venture that will bring $7.000 at the end of one year. "1 will invest my money to this certain venture unless there's a 88% chance of winning the $10.000" • A certain venture that will bring $9.000 at the end of one year. "1 will invest my money to this certain venture unless there's a 97% chance of winning the $10.000" On the other hand if the utility values for $10.000 and $0 are 1 and 0.1 respectively. 1. Calculate the utility values for $3.000, $5.000, $7.000 and $9.000. 2. Represent these values including that of $0 and $10.000 on a graph (the utility curve) 3. Is this decision maker a risk seeker or risk averse type person? Why? (With a maximum of 50 words!)
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