EBK MINDTAP FOR KELLER'S STATISTICS FOR
11th Edition
ISBN: 9780357110676
Author: KELLER
Publisher: VST
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Chapter 7.1, Problem 34E
To determine
Whether he chooses cash or gold coin.
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could you answer part b to this question or if you have time part a and part b but part is more important. thank you
Priyanka has an income of £90,000 and is a von Neumann-Morgenstern expected utility maximiser with von Neumann-Morgenstern utility index . There is a 1 % probability that there is flooding damage at her house. The repair of the damage would cost £80,000 which would reduce the income to £10,000.
a) Would Priyanka be willing to spend £500 to purchase an insurance policy that would fully insure her against this loss? Explain.
b) What would be the highest price (premium) that she would be willing to pay for an insurance policy that fully insures her against the flooding damage?
Tasha is planning to invest in a farming project in 2022, but has a reservation given the different forecast (declined (D),the average (A) and takeoff (T)of the economy. She uses the following to guide her decision making. (i) there is 25% chance she will invest if there is a forecast of declined (ii) there is a 75% chance she will invest if there is a forecast of average growth and (iii) there is a 55% chance of investing if there is a forecast that economy will takeoff. Tashanna believes that for 2022 there is a 20% chance of decline and a 40% chance of average growth and a 40% chance the economy will take off. Based on these probabilities what is the chance that Tattiana will invest in the farming project if the stated forecast hold?
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.
Chapter 7 Solutions
EBK MINDTAP FOR KELLER'S STATISTICS FOR
Ch. 7.1 - Prob. 1ECh. 7.1 - Prob. 2ECh. 7.1 - Prob. 3ECh. 7.1 - Prob. 4ECh. 7.1 - Prob. 5ECh. 7.1 - Prob. 6ECh. 7.1 - Prob. 7ECh. 7.1 - Prob. 8ECh. 7.1 - Prob. 9ECh. 7.1 - Prob. 10E
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