Question One. The ABC Book Company has a choice of publishing one of two books on the subject of Greek mythology. It expects the sales period for each to be extremely short, and it estimates profit probabilities as follows: Probability 0.2 0.3 0.3 0.2 Book A Profit Class Exercise $2,000 2,300 2,600 : 2,900 Probability 0.1 0.4 0.4 0.1 Book B Profit $1,500 1,700 1,900 2,100 Calculate the expected profit, standard deviation, and coefficient of variation for each of the two books. If you were asked which of the two to publish, what would be your advice?

You're the manager of global opportunities for a U.S. manufacturer that is considering expanding sales into Asia. Your ma the market potential in Malaysia, the Philippines, and Singapore as described in the following table: Success Level Big Mediocre Failure Malaysia Probability 0.5 0.3 0.2 Units 500,000 300,000 0 Philippines Probability 0.2 0.7 0.1 Units 1,400,000 700,000 0 Singapore Probability Units 0.3 0.3 0.4 1,200,000 384,000 0 The product sells for $10, and each unit has a constant marginal cost of $8. Assume that the (fixed) cost of entering the market (regardless of which market you select) is $250,000. In the following table, enter the expected number of units sold, and the expected profit, from entering each market. Market Malaysia Expected Number of Units Sold Expected Profit Philippines Singapore $ If you were to enter one of the previously described markets, which one would you enter in order to earn the highest expected profit?

‘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.

You invest in a new project whose profit is distributed as follows: Probability Profit 10% 1,000,000 50% 500,000 15% 10,000,000 20% 5% -1,000,000 What are the expected profits from this project?

If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not use pesticides he expects a crop of 50,000 bushels.  The cost of pesticides is $30,000 and the other costs associated with planting and harvesting the crop total $450,000. The price of corn at harvest time will either be $9.00 with probability of 0.50 or it will be $11.00 with probability 0.50, so if the farmer decides to sell the crop at harvest, the expected price per bushel that he will receive is $10.00.  If the farmer does not use pesticides and decides to sell the crop at harvest, what is his expected profit?     a. $180,000.00   b. $100,000.00   c. $50,000.00   d. $20,000.00 If the farmer uses pesticides he expects a crop of 60,000 bushels; if he does not use pesticides he expects a crop of 50,000 bushels.  The cost of pesticides is $30,000 and the other costs associated with planting and harvesting the crop total $450,000. The price of corn at harvest time will either…

There are two types of projects in the market: A (safer) and B (riskier). At time 1, the payoff of A will be either $500 (probability 0.75) or $300 (probability 0.25). The appropriate discount rate for project A is 12%. The minimum price A can accept is $350. The payoff of B will be either $800 (probability 0.2) or $100 (probability 0.8). The appropriate discount rate for project B is 20%. In this simple economy, there are 90% chance that the project will be A. Evaluate the funding situation, i.e., which type of project will be funded and the price, based on the following scenarios: When there is no information asymmetry and everyone knows everything. When there is information asymmetry and investors cannot tell if the project is A or B.

Risk difference may sometimes be referred to as excess risk.  True  False

suppose you pay 25 dollars to enter into a raffle with a 400 dollar prize. if you have a 5% chance of winning, the expected value of winning is?

A real estate developer must decide on a plan for developing a certain piece of property. After careful consideration, the developer has two acceptable alternatives:  residential proposal or commercial proposal.   The main factor or state of nature that will influence the profitability of the development is whether or not a shopping center is built close by and the size of the shopping center.  There is a 20% chance of no center being built, a 50% chance of a medium shopping center built, and a 30% chance of a large shopping center.  If the developer selects the residential proposal and no center is built, he has a further set of options: do nothing $400,000 payoff; build a small shopping center himself $700,000 payoff; or put in a park resulting in $800,000 payoff. Should a medium shopping center be built nearby, his payoff for residential would be $1,600,000 and large shopping center results in a $1,200,000 payoff. If the developer selects the commercial proposal and no center is…

You have been given the following risk assessment by your team. >=0.45. Calculate the Total Risk Exposure for your project. You have decided to track only risk Risk Probability Response Time too slow 0.25 Requirements Mismatch 0.33 Web Server Failure 0.45 Late delivery 0.6 Personnel Shortfall 0.55 Loss $14,000.00 $6,000.00 $0 $150,000.00 $12,000.00