(b) An investor's utility function is given by: U(w) = In(w 2 ) where w is the investor's level of wealth. %3D For this investor: (i) show that their marginal utility is positive. (ii) determine their risk preference
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- Q1. A real-estate investor has the opportunity to purchase a small apartment complex. The apartment complex costs $4 million and is expected to generate net revenue (net after all operating and finance costs) of $60,000 per month. Of course, the revenue could vary because the occupancy rate is uncertain. Considering the uncertainty, the revenue could vary from a low of − $10,000 to a high of $100,000 per month. Assume that the investor’ s objective is to maximize the value of the investment at the end of 10 years.a) Do you think the investor should buy the apartment complex or invest the $4 million in a 10-year certificate of deposit earning 9.5%? Why? b)b) The city council is currently considering an application to rezone a nearby empty parcel of land. The owner of that land wants to build a small electronics-assembly plant. The proposed plant does not really conflict with the city’s overall land use plan, but it may have a substantial long-term negative effect on the value of the…What is the Risk-Adjusted Discount?Suppose an investor is concerned about a business choice in which there are three projects, the probability and returns are given below. Probability Return 0.4 $100 0.4 40 The expected value of the uncertain investment is $ ----------- (round off to the nearest dollar.
- The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): state of nature low demand medium demnad high demand Decision alternative s1 s2 s3 manufacture d1 -20 40 100 purchase d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. a. Use expected value to recommend a decision. b. Use EVPI to determine whether Gorman should attempt to obtain a better estimate of demand.The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): state of nature low demand medium demnad high demand Decision alternative s1 s2 s3 manufacture d1 -20 40 100 purchase d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. a. A test market study of the potential demand for the product is expected to report either a favourable (F) or unfavourable (U) condition. The relevant conditional probabilities are as follows: P(F|S1)=0.10 P (U|S1)=0.90 P(F|S2)=0.40 P (U|S2)=0.60 P(F|S3)=0.60 P (U|S3)=0.40 A.Compute the probabilities by completing the table Sate of…The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): state of nature low demand medium demnad high demand Decision alternative s1 s2 s3 manufacture d1 -20 40 100 purchase d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. a. A test market study of the potential demand for the product is expected to report either a favourable (F) or unfavourable (U) condition. The relevant conditional probabilities are as follows: P(F|S1)=0.10 P (U|S1)=0.90 P(F|S2)=0.40 P (U|S2)=0.60 P(F|S3)=0.60 P (U|S3)=0.40 What is the expected value of the market research information?…
- The Gorman Manufacturing Company must decide whether to manufacture a component part at its Milan, Michigan, plant or purchase the component part from a supplier. The resulting profit is dependent upon the demand for the product. The following payoff table shows the projected profit (in thousands of dollars): state of nature low demand medium demnad high demand Decision alternative s1 s2 s3 manufacture d1 -20 40 100 purchase d2 10 45 70 The state-of-nature probabilities are P(s1) = 0.35, P(s2) = 0.35, and P(s3) = 0.30. a. A test market study of the potential demand for the product is expected to report either a favourable (F) or unfavourable (U) condition. The relevant conditional probabilities are as follows: P(F|S1)=0.10 P (U|S1)=0.90 P(F|S2)=0.40 P (U|S2)=0.60 P(F|S3)=0.60 P (U|S3)=0.40 A.Compute the probabilities by completing the table Sate of…1. Individual Problems 18-1 You hold an oral, or English, auction among three bidders. You estimate that each bidder has a value of either $88 or $110 for the item, and you attach probabilities to each value of 50%. The winning bidder must pay a price equal to the second highest bid. The following table lists the eight possible combinations for bidder values. Each combination is equally likely to occur. On the following table, indicate the price paid by the winning bidder. Combination Number Bidder 1 Value Bidder 2 Value Bidder 3 Value Probability Price ($) ($) ($) 1 $88 $88 $88 0.125 2 $88 $88 $110 0.125 3 $88 $110 $88 0.125 4 $88 $110 $110 0.125 5 $110 $88 $88 0.125 6 $110 $88 $110 0.125 7 $110 $110 $88 0.125 8 $110 $110 $110 0.125 The expected price paid is . Suppose that bidders 1 and 2 collude and would be willing to bid up to a maximum of their values, but the two bidders…the probability of reaching the wrong conclusion to 0.05 the probability of a Type II error equal to 0.05 the probability of reaching the correct conclusion equal to 0.05 the probability of a Type I error equal to 0.05 attached in ss below thanks
- Find the expected value assuming the risk factor is 30 % and the interest rate 12%, if you will receive $20,000 one year from today.please show workEunice, the industry analyst of H&M, wants to determine the propensity of Major Clothingcompanies toward risk. She was able to determine the utility distribution of H&M, Uniqloand Dickies. For H&M, If the expected payoff of a venture is a loss of 125,000, the utilityvalue is 0.00, if a loss of 75,000, the utility value is .2, if breakeven, the utility value is .5,if gain of 75,000 .8 and if gain of 125,000 utility value is 1. For Uniqlo, if loss of 125,000utility value is 0, if loss of 75,000 utility value is .1, breakeven is .4, if a gain of 75,000,utility value is .7 and if gain of 125,000 utility value is 1. For Dickies, if loss of 125,000,utility value is 0, if loss of 75,000, utility value is .3 breakeven is .6, if gain of 75,000, utilityvalue is .9 and gain of 125,000, utility value is 1. What is the propensity to risk of the threeinternet companies? Explain your graph.I am in possession of two coins. One is fair so that it lands heads (H) and tails (T) with equal probability while the other coin is weighted so that it always lands H. Both coins are magical: if either is flipped and lands H then a $1 bill appears in your wallet, but when it lands T nothing happens. You may only flip a coin once per period. The interest rate is i per period. You are risk-neutral and thus only concern yourself with expected values (and not variance). For simplicity, in the questions below assume you will live forever. 1. How much are you willing to pay for such a coin that you know is fair? 2. How much are you willing to pay for such a coin that you know is weighted? 3. I currently own the coins and know which is fair and which is weighted, but you cannot tell which is which. You may make an offer to purchase a coin of your choosing, which I am free to accept or reject. What is the most you are willing to offer? Explain how you arrived at this answer. 4. Suppose now…
