PATTS is deciding which of the two investments to take. Option A, total costs = $75,000,000 and the expected benefits = $95,000,000. Option B, total costs = $36,000,000 and the expected benefits = $60,000,000. Which option PATTS should choose?
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PATTS is deciding which of the two investments to take. Option A, total costs = $75,000,000 and the expected benefits = $95,000,000. Option B, total costs = $36,000,000 and the expected benefits = $60,000,000. Which option PATTS should choose?
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- 2 Consider the two investments listed below with possible outcomes and probabilities: INVESTMENT (in $1000) SAFE RISKY INVESTMENT AMOUNTⓇ 40+ 40+ GOOD SCENARIO OUTCOME 45+ 80+ AVERAGE+ SCENARIO PROB OUTCOME 0.40* 0.40€ 42+ 45+ BAD+ SCENARIO PROB OUTCOME PROB 0.20 35+ 0.20 10+ 0.40€ 0.40+ b) a) Suppose I have utility function U(*) = (x)2. What is the expected utility from each investment? Which investment will I choose, if any? Show and explain your work and provide the intuition. c) What is the value of the risk premium for the SAFE investment? Show and explain your work and provide the intuition. d) What is the value of the risk premium for the RISKY investment? Show and explain your work and provide the intuition.< +An oil company is considering drilling in the Gulf at a current cost of $400,000 with an expected profit of $500,000 in three years. The current market rate of interest is 10 percent. Should the company make the investment? Multiple Choice No, the present value of the profit is less than the present value of the cost.. No, the future value of the profit is less than the present value of the cost. Yes, the present value of the profit is greater than the present value of the cost.. Yes, the future value of the profit is greater than the present value of the cost.a-What are the five factors that affect an option's price? b-Discuss the impact of time to expiration on the option price by explaining to the graph below. Call pre Put price 10 OR69 12 15 18 21 24 27 30 3 24s 4 SI 54 57 6e Time te ration month
- PLEASE EXPLAIN ALSO WHY OTHER OPTIONS NOT CORECTAccording to the text explain briefly what is the expected value of a decision alternative?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?
- If a trader sells an option at an implied volatility of 10%, and plans to delta hedge it, over the life of the option she hopes realized volatility will be: A. lower than 10% B. if its three month option then she hopes its 10/3 C. higher than 10% D. irrelevant where realized will beSam, after taking a $200 loan from the bank to finance an investment that pays $1000 50% of the time and $0 50% of the time at a 100% interest, discovers another riskier investment that pays out $5,000 but only 10% of the time, while the other 90% of the time it pays zero. Would the he want to switch to the riskier investment? Question 4 options: Yes because his return has increased No because his liability to the bank has increased No because his return has decreased None of the aboveJohnny is "paid" by his parents $2o if he gets a grade A, $10 if he gets a grade B, whereas he has to pay his parents back $5 if he gets a grade other than A or B. On average 20% of the grades he gets are A, and 30% are grades B. What is the expected value of what he "earns" per grade ? What is the expected value of what he "earns" at school weekly if on average he gets five grades a week ? How long should Jim save until he collects enough money to buy a pair of brand new Hi-Fi headphones that cost $225?