‘Lottery A’ refers to a lottery ticket that pays $2,000 with a probability of 0.3, $8,000 with a probability of 0.4, $12,000 with a probability of 0.2, and $18,000 with a probability of 0.1. Lottery B pays $3,000 with a probability of 0.3, $8,000 with a probability of 0.4, $12,000 with a probability of 0.2, and $15,000 with a probability of 0.1. Which of the following is true? A) A risk-averse person would definitely prefer lottery A to lottery B.B) A risk-averse person would definitely prefer lottery B to lottery A.C) Whether a risk-averse person prefers lottery A to lottery B depends on his degree of risk-aversion.D) A risk-averse person would prefer to pay $50 to switch from lottery B to lottery A.E) We do not have enough information to judge whether any of the statements listed in A-D, above, are correct.

A risk-neutral worker can choose Low or High effort. The manager cannot observe the worker's action, but the manager can observe the realized revenue for the firm (either $300 or $500). Low Effort Cost for worker= $0 Probability Low Revenue ($300)=80% Probability High Revenue ($500)=20% High Effort Cost for worker= $40 Probability Low Revenue ($300)=40% Probability High Revenue ($500)=60% Instead of offering a flat wage, the manager is trying a new payment scheme. The manager is currently offering to the worker a payment equal to 40% of the revenue of the firm. Given this payment, the firm's expected profit will be

A wheel of fortune in a gambling casino has 54 different slots in which the wheel pointer can stop. Four of the 54 slots contain the number 9. For a 1 dollar bet on hitting a 9, if he or she succeeds, the gambler wins 10 dollars plus the return of the 1 dollar bet. What is the expected value of this gambling game? What is the meaning of the expected value result?

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Cheryl Druehl Retailers, Inc., must decide whether to build a small or a large facility at a new location in Fairfax. Demand at the location will either be low or high, with probabilities 0.6 and 0.4, respectively. If Cheryl builds a small facility and demand proves to be high, she then has the option of expanding the facility. If a small facility is built and demand proves to be high, and then the retailer expands the facility, the payoff is $230,000. If a small facility is built and demand proves to be high, but Cheryl then decides not to expand the facility, the payoff is $183,000. If a small facility is built and demand proves to be low, then there is no option to expand and the payoff is $250,000. If a large facility is built and demand proves to be low, Cheryl then has the option of stimulating demand through local advertising. If she does not exercise this option, then the payoff is $45,000. If she does exercise the advertising option, then the response to advertising will…

16. The market consists of only two assets, A and B, with normally distributed re- turns. Asset A's returns have a mean of 18% and a standard deviation of 14% and Asset B's returns have a mean of 15% and a standard deviation of 18%. In such a scenario a risk-averse investor would always want to invest all of her money in Asset A.   17. A call option offers the purchaser limited downside loss as given by the option premium paid, combined with limited upside potential.   18. The return earned on a risk free portfolio must be equal to the risk free interest rate.   19. CAPM assumes that all investors' optimal portfolio has a fraction invested in the risk-free asset and the remaining in the minimum variance portfolio.   20. For any frontier portfolio p, except the minimum variance portfolio, there exists a unique frontier portfolio with which p has zero covariance.   21. The market portfolio of all available assets is the supply of risky assets.   22. An arbitrage opportunity is an…

Given the following data with 25 % probability Bidder 1 bids 100 and Bidder 2 bids 80. What is the winning bid? Select the correct response 80 45 100 25

Q1)  An expected utility maximiser owns a car worth £60000£60000 and has a bank account with £20000£20000. The money in the bank is safe, but there is a 50%50% probability that the car will be stolen. The utility of wealth for the agent is u(y)=ln(y)u(y)=ln⁡(y) and they have no other assets.

‘Lottery A’ refers to a lottery ticket that pays $2,000 with a probability of 0.3, $8,000 with a probability of 0.4, $12,000 with a probability of 0.2, and $18,000 with a probability of 0.1.What is the expected value of Lottery A?A) $7200B) $8000C) $9000D) $7900E) None of the above

An individual has a utility function U(W) = VW, where W is the level of wealth. They have been offered a gamble with a payout of £170 with a probability of 0.74 and a payout of £49.7 with a probability of 1-0.74. The Certainty Equivalent of this gamble is: Answer: