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 0.20€ 0.20 35€ 10€ PROB 0.40€ 0.40€ a) Suppose I have utility function U(*) = (x)². What is the expected utility from each investment? b) 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. P 13 P

Could you also answer part (d) (e) (f). Greatly Appreciated!

How much will Sonja have in a savings account 12 years from now if she deposits $3000 now and $5000 four years from now? The account earns interest at a rate of 10% per year. (a) $10,720 (b) $9,415 (c) $20,133 (d) $15,630 (e) Greater than $22,000

An investment project costs $100,000. ll is expected to have an annual net cash flow of $40,000 for 5 years. What is the project's payback period?(a) 2.5 years(b) 3.5 year(c) 4.5 years(d) 5 years

If $1000 is invested annually at 6% continuous compounding for each of 10 years, how much is in the account after the last deposit? (a) $1822 (b) S10,000 (c) $13,181 (d) $13,295

If you borrow $1000 from the bank at 5% simple interest per month due back in 2 years, what is the size of your monthly payments? (a) $25 (b) $50 (c) $500 (d) $1200

Please use the formulae and make the solution Project Month Month Month Month Status at the end of Month 3 Phases 1 2 3 4 Requirements Definition S-F Complete, spent $10,000 Architecture and Design SPF F Complete, spent $12000 Development and unit testing System testing and Operation S -PF 50% done, spent $9000 Not yet started

Municipal Engineer wants to evaluate three alternatives for supplementing the water supply. 1st alternative – continue deep well pumping at an annual cost of $10,500 2nd alternative – install a 10” pipeline from a surface reservoir.  First cost is $25,000 and annual pumping cost is $7,000 3rd alternative – install a 20” pipeline from the reservoir. First cost of $34,000 and annual pumping cost of $5,000. Life of all alternatives is 20 years. For the second and third alternatives, salvage value is 10% of first cost. With interest at 8%, which alternative should the engineer recommend? Use present worth analysis   PW (deepwell) = ? PW (10”pipeline) = ? PW (20”pipeline) = ?

A new corporate bond with a coupon rate of 8% was initially sold by a stockbroker to an investor for $1000. The issuing corporation promised to pay the bondholder $40 interest on the $1000 face value of the bond every 6 months, and to repay the $1000 at the end of 10 years. After one year the bond was sold by the original buyer for $950. (a) What rate of return did the original buyer receive on his investment? (b) What rate of return can the new buyer (paying $950) expect to receive if he keeps the bond for its remaining 9-year life?