Suppose that there is a 20 percent change that George's coffee shop will make $9000 in profits in January and a 40 percent chance it will make 1000 profits and a 40 percent chance that it will make -$1000 in profits (i.e., it will lose $1000). Calculate the coffee shop's expected profits
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Suppose that there is a 20 percent change that George's coffee shop will make $9000 in profits in January and a 40 percent chance it will make 1000 profits and a 40 percent chance that it will make -$1000 in profits (i.e., it will lose $1000).
Calculate the coffee shop's expected profits
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- Suppose that there is a 45 percent change that George's coffee shop will make $10000 in profits in January and a 45 percent chance it will make 0 profits and a 10 percent chance that it will make -$1000 in profits (i.e., it will lose $1000). Calculate the coffee shop's expected profitsWhat is the expected return from an investment if there is a 20 percent chance of a 4 percent return, a 40 percent chance of a 8 percent return, and a 40 percent chance of a 12 percent returnY = 1million + 56.43*X + error By how much does the expected value of Y change if X increases by 2 units? (Round your answer to two decimal places: ex: 123.45) Y = 50 + 3X + error By how much does the expected value of Y change if X decreases by 10 units?
- Suppose your utility function for money is a square-root function of its value in US dollars. So, for instance, $400 is worth 20 utils for you, $961 is worth 31 utils for you, and $62.5K is worth 250 utils for you. Now, let’s say your annual salary is $90K, although there is a small risk (p = 0.05) that something catastrophic will happen and reduce your income for the year to $14.4K. An insurance company comes along and offers to insure you against the loss of your salary. The cost of the insurance is $4,736. If you buy the policy and catastrophe strikes, the insurance company will pay out the $75,600 that you would otherwise have lost. From the standpoint of maximizing expected utility, would buying this insurance be a good deal for you? What would be the insurance company’s expected monetary value of selling you the policy?An investor is considering three strategies for a $1,000 investment. The probable returns are estimated as follows: • Strategy 1: A profit of $10,000 with probability 0.15 and a loss of $1,000 with probability 0.85 • Strategy 2: A profit of $1,000 with probability 0.50, a profit of $500 with probability 0.30, and a loss of $500 with probability 0.20 • Strategy 3: A certain profit of $400 Which strategy has the highest expected profit? Explain why you would or would not advise the investor to adopt this strategy.You are taking two courses this semester, biology and chemistry. You have quizzes coming up in both classes. The table below shows your grade on each quiz for different numbers of hours studying for each quiz. For instance, the second row implies that one hour of studying for Chemistry will generate an expected grade of 73 on Chemistry, whereas one hour of studying for Biology will generate an expected grade of 75 on Biology. Hours of Study Chemistry Biology 0 65 68 1 73 75 2 79 80 3 83 83 Your goal is to maximize your average grade on the two quizzes. Use the idea of optimization in differences to decide how much time you would spend studying for each quiz if you had a total of 1, 2, or 3 hours to prepare for each exam. If you had 1 hour, you should study..... If you had 2 hours, then you should study.... hour(s) for chemistry and..... hour(s) for biology. If you had 3 hours, then you should study ..... hour(s) for chemistry and..... hour(s) for biology.…
- The promoter of a football game is concerned that it will rain. She has the option of spending $14,040 on insurance that will pay $39,000 if it rains. She estimates that the revenue from the game will be $65,040 if it does not rain and $30,040 if it does rain. What must the chance of rain be if buying the policy has the same expected return as not buying it? Write expressions showing the expected returns if the promoter does and does not purchase the insurance, using p to represent the probability of rain. Without insurance, E(return) = With insurance, E(return) = The chance of rain must be _%.Jamal has a utility function U = W1/2, where W is his wealth in millions of dollars and U is the utility he obtains from that wealth. In the final stage of a game show, the host offers Jamal a choice between (A) $4 million for sure, or (B) a gamble that pays $1 million with probability 0.6 and $9 million with probability 0.4. (1) Does A or B offer Jamal a higher expected utility? Explain your reasoning with calculations. (2) Should Jamal pick A or B? Why? I would like help with the unanswered last parts of the questions.Angie owns an endive farm that will be worth $90,000 or $0 with equal probability. Her Bernouilli utility function is u(w) =√w, where w is her wealth level (sum of initial wealth and the worth of the endive farm). 1. Suppose her firm is the only asset she has, that is, she has no initial wealth. What is the lowest price P at which she will agree to sell her endive farm before she knows how much it will be worth? 2. Redo part (1) assuming that she has $160,000 in her bank safe. 3. Compare and discuss your results in parts (1) and (2). What relationship can you find between Angie’s initial wealth level (zero versus $160,000) and her risk aversion?
- Quick answer please If you are currently a worker earning $60,000 per year but are considering becoming an entrepreneur. You will not switch unless you earn an accounting profit that is on average at least as great as your current Salary. You look into opening a small grocery store. Suppose that the store has annual cost of $150,000 for labor, $60,000 for rent and $30,000 for equipment. There is one-half probability that revenues will be $20,000 and a half probability that revenue will be $420,000 a. WHat is your accounting and economic profit?Stewart will have a total wealth of $12,000 this year, if he stays healthy. Suppose Stewart has a 50% chance of staying healthy and a 50% chance of getting sick. If Stewart gets sick, then he will have to pay $8,000 for medical bills, leaving him $4,000 of total wealth. Under these conditions, Stewarts expected wealth (a.k.a. expected value of wealth) is $8,000. Based on the graph shown below, what level of wealth with certainty (i.e., wealth that Stewart is certain to have) would make Stewart equally as happy as he is when facing the 50% chance of being sick?You are considering a $500,000 investment in the fast-food industry and have narrowed your choice to either a McDonald’s or a Penn Station East Coast Subs franchise. McDonald’s indicates that, based on the location where you are proposing to open a new restaurant, there is a 25 percent probability that aggregate 10-year profits (net of the initial investment) will be $16 million, a 50 percent probability that profits will be $8 million, and a 25 percent probability that profits will be −$1.6 million. The aggregate 10-year profit projections (net of the initial investment) for a Penn Station East Coast Subs franchise is $48 million with a 2.5 percent probability, $8 million with a 95 percent probability, and −$48 million with a 2.5 percent probability. Considering both the risk and expected profitability of these two investment opportunities, which is the better investment? Explain carefully.
