### Pharmaceutical Companies' Expected Payoffs**Scenario:**Big Cure and Little Cure are both pharmaceutical companies. Big Cure currently has a potential "blockbuster" drug awaiting approval from the Food and Drug Administration (FDA). If approved, this drug will generate $1 billion in net income for Big Cure.Little Cure has ten separate, less significant drugs also awaiting FDA approval. Each of these drugs is projected to bring in $50 million in net income for Little Cure if approved. The probability of the FDA approving any given drug is 50%.**Question:**What is the expected payoff for Little Cure's ten drugs?**Options:**- A. $250 million- B. $50 million- C. $1 billion- D. $0### Analysis and Calculation:To determine the expected payoff for Little Cure's ten drugs, you should consider the approval probability and potential income for each drug.1. **Probability of Approval:** 50% (or 0.5)2. **Net Income per Approved Drug:** $50 millionFor each drug:- Expected Income = Probability of Approval × Potential Income- Expected Income = 0.5 × $50 million = $25 millionSince there are ten independent drugs:- Total Expected Payoff = Number of Drugs × Expected Income per Drug- Total Expected Payoff = 10 × $25 million = $250 million### Conclusion:The expected payoff for Little Cure’s ten drugs is **$250 million**.---**Correct Answer:**- Option A: $250 million

The expected payoff refers to the probable outcome of the event or its value. Expected payoff =…

Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential "blockbuster" drug. before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has ten separate, less important drugs before the FDA waiting for approval. If approved, each of Little Cure's drugs would produce $50 million in net income for Little Cure. The probability of the FDA approving a drug is 50%. What is the expected payoff for Little Cure's ten drugs? A. $250 million B. $50 million C. $1 billion. OD. $0

Big Cure and Little Cure are both pharmaceutical companies. Big Cure presently has a potential "blockbuster" drug. before the Food and Drug Administration (FDA) waiting for approval. If approved, Big Cure's blockbuster drug will produce $1 billion in net income for Big Cure. Little Cure has ten separate, less important drugs before the FDA waiting for approval. If approved, each of Little Cure's drugs would produce $50 million in net income for Little Cure. The probability of the FDA approving a drug is 50%. What is the expected payoff for Little Cure's ten drugs? A. $250 million B. $50 million C. $1 billion. OD. $0

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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