Decisions Involving Uncertainty - End of Chapter Problem You currently have $10,000 in total wealth and rate your current utility at 4.25. You are deciding if you should invest your money in your friend's automotive restoration business. There is a 50% probability that you will double your money, in which case your total utility will be 6. There is a 50% probability that your friend's business will fail and you will lose the entire $10,000 and your total utility will be 2.5. a. What is the expected utility of investing in your friend's company? Expected utility: b. If you are risk averse, should you take the gamble and invest in your friend's company? invest in your friend's company. c. Would your answer to part b be different if there was a 75% chance that you would double your money by investing in your friend's business? Your answer to part b You

Decisions Involving Uncertainty - End of Chapter Problem You currently have $10,000 in total wealth and rate your current utility at 4.25. You are deciding if you should invest your money in your friend's automotive restoration business. There is a 50% probability that you will double your money, in which case your total utility will be 6. There is a 50% probability that your friend's business will fail and you will lose the entire $10,000 and your total utility will be 2.5. a. What is the expected utility of investing in your friend's company? Expected utility: b. If you are risk averse, should you take the gamble and invest in your friend's company? invest in your friend's company. c. Would your answer to part b be different if there was a 75% chance that you would double your money by investing in your friend's business? Your answer to part b You

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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3. Your favorite neighbor Poindexter learns you are pursuing an MBA and seeks your advice on how to finance his next vehicle. He has gathered information about each option but is not sure how to compare the alternatives. Purchasing a new vehicle will cost $26,500, and he expects to spend about $500 per year in maintenance costs. He would keep the vehicle for five years and estimates that the salvage value will be $10,500. Alternatively, Poindexter could lease the same vehicle for five years at a cost of $5,000 per year, including all maintenance. The lease payments are made at the beginning of each year. Assume a discount rate of 10%. o Provide an analysis for Poindexter at 10%. o Provide the same analysis for good old Poindexter assuming a rate of 5%. At what rate will he be indifferent? o
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Dont uplode image in answer, USE BAII Plus Financial Calculator to solve the TVM questions. $_____________You would like to start saving for retirement. Assuming you are now 22 years old and you want to retire at age 60, you have 38 years to watch your investment grow. You decide to invest in the stock market, which you expect it to earn about 6% per year into the future. You decide to invest $600 at the end of each month for the next 38 years (456 months). Calculate your accumulated investment at the end of 38 years. (Round to nearest whole dollar)
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1. If you begin investing at age 25 instead of age 20, how much more do you need to invest per month to have $1M at retirement? 2. If you begin investing at age 45 instead of age 40, how much more do you need to invest per month to have $1M at retirement? Why is this amount so much greater than the difference between 20 and 25? 3. If you wait until you’re 45 to begin investing, how much money will you need to invest, just for retirement, per year? Why might this be difficult? 4. Using the data in graphs II and III, how much will most millennials need to begin investing, per month, in order to have $1M in retirement? Please, explain.
Kindly assist on questions below. (1) A person has wealth of $ 40000. If they have an accident they mush spend $ 30000 on car repairs. Their utility function is given by U = w1/2 where w is equal to their wealth . They do not get into an accident with 90% chance and they get into an accident with 10 % chance. What is the total fair premium for full insurance for this person. (2) Risk pooling can decrease risk if: a) Risks are independent b) risks are dependent c) enough people pool their risk d) if the amount if risk is small enough e) if people have different risk preferences
Alia wants to open up a sandwich shop in Amman. She collects data on the initial cost, operating and maintenance cost, yearly benefit (revenue from sandwich sales), and salvage value of the equipment she buys for the sandwich shop when she closes down the business in 5 years. Determine the best alternative using the annual cash flow analysis method for an interest rate of 8%. Do nothing is a possible alternative. Alt B $45,000 $25,000 $10,000 $4,000 $18,000 $13,000 $3,000 $6,000 Alt A First Cost Benefit per yr O&M annua st Salvage Value Life in years 5 (35 Points) Alt C $20,000 $1,900 $9,000 $4,600 Alt A $45,000 $10,000 and $18,000 Alt B $25,000 $4,000 $13,000 Alt C $20,000 $1.900 $9,000 First Cost Benefit per year Operations maintenance cost Salvage Value Life in years $3,000 $6.000 $4,600
Y8
QUESTION 3 Discuss the meaning of "the present value of a future amount"? Give the general equation for present value? a. Farizal intends to buy a new car, the Myvi for RM57,650, but only has RM20,000 in cash. How many years will it take for RM20,000 to grow to RM57,650 if it is invested at 10% interest compounded annually? b. Wahida has decided to invest RM1,000 for two years in a savings account paying 6% interest compounded semi-annually. Compute the future value of Wahida's investment? C. d. Sharifah Aminah receives a mixed stream of cash flows from an investment over the next five years: Year Cash Flow (RM) 5,000 6,500 4,500 5,200 5,800 1 What is the initial amount that Sharifah Aminah should invest if the required return is 10%? 2345
Km. 207
Frank Zanca is considering three different investments that his broker has offered to him. The different cash flows are as follows: End of Year A 1 $300 B C $400 2 $300 3 $300 4 $300 $300 $600 5 $300 6 $300 $300 $300 $600 7 8 Because Frank only has enough savings for one investment, his broker has proposed alternative C to be, according to his expertise, "the best in town." However, Frank questions his broker. Calculate the present value of each investment, assuming a 15% discount rate. Which is Frank's best alternative? Select one: a. Investment A O b. Investment B c. Investment C O d. He should not invest in any of the suggested investments O e. All of the investments are equally good
Suppose you want to have $9,000 saved in 6 years. If you can earn 4.6% on your funds, how much would you have to invest today to reach your goal? $ 6,310 $ 6,456 $6,872 $6,853

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