You have determined that your risk tolerance is 60. Calculate your utility for the following payoffs: (Round your answers to 2 decimal places.) Payoff Utility 8 15 20
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- Consider a game where there is a $2,520 prize if a player correctly guesses the outcome of a fair 7-sided die roll.Cindy will only play this game if there is a nonnegative expected value, even with the risk of losing the payment amount.What is the most Cindy would be willing to pay?Suppose that you graduate from college next year and you have two career options: 1) You will start a job in an investment bank paying a $100,000 annual salary. 2) You will start a Ph.D. in economics and, as a student, you will receive a $20,000 salary. You are bad with decisions, so you are letting a friend of yours decide for you by flipping a coin. The probabilities of options 1 and 2 are, therefore, each 50%. a) Illustrate, using indifference curves, your preferences regarding consumption choices in the two different states of the world. Assume that you are risk-averse. [Include also the 45 degrees line in your figure] b) Now show how the indifference curves would change if you were substantially more risk averse than before. Explain. c) Now show the indifference curves if you are risk neutral and if you are risk loving. d) Show your expected utility preferences from point a) mathematically.how do you do you find the expected payback for this problem? Find the expected payback for a game in which you bet $1010 on any number from 00 to 399.399. If your number comes up, you get $400400.
- Utility functions incorporate a decision maker’s attitude towards risk. Let’s assume that the following utilities were assessed for Danica Wary. x u(x) -$2,000 0 -$500 62 $0 75 $400 80 $5,000 100 Would a risk neutral decision maker be willing to take the following deal: 30% chance of winning $5,000, 40% chance of winning $400 and a 30% chance of losing $2,000? Using the utilities given in the table above, determine whether Danica would be willing to take the deal described in part a? Is Danica risk averse or is she a risk taker? What is her risk premium for this deal?First Player can invest $1.00 with Second Player (low reliance) or $2.00 (high reliance). Based on the payoffs shown below, what is the probability of performance that makes High Reliance optimal? Write your answer as a two digit integer. E.g., if the answer is 33%, write 33. Second Player Perform Breach Invest & Low Reliance 0.25 1.0 First Player 0.25 -1.0 Invest & High Reliance 0.5 1.0 0.75 -2.0How much is his risk on any random day due to late arrival?
- You're a contestant on a TV game show. In the final round of the game, if contestants answer a question correctly, they will increase their current winnings of $3 million to $4 million. If they are wrong, their prize is decreased to $2,250,000. You believe you have a 25% chance of answering the question correctly. Ignoring your current winnings, your expected payoff from playing the final round of the game show is. Given that this is ______________ (POSITIVE/NEGATIVE), you___________ (SHOULD/ SHOULD NOT) play the final round of the game. (Hint: Enter a negative sign if the expected payoff is negative.) The lowest probability of a correct guess that would make the guessing in the final round profitable (in expected value) is (Hint: At what probability does playing the final round yield an expected value of zero?)Please draw a utility function that exhibits risk-loving behavior for small gambles (low values)and risk-averse behavior for larger gambles (high value).Anna is risk averse and has a utility function of the form u(w) pocket she has €9 and a lottery ticket worth €40 with a probability of 50% and nothing otherwise. She can sell this lottery ticket to Ben who is risk neutral and has €30 in his pocket. Find the range of prices that would make such a transaction possible
- You take a position with a large real estate development company as your first job after graduation. Your first big assignment is to sell an office building – you have been informed the company’s cost into the building (and the bottom line price it is willing to accept) is $400,000. You have identified a likely buyer and you assess that his top price is either $500,000 with a probability of .3, $600,000 with a probability of .5, or $1,000,000 with a probability of .2. You have to commit to a posted price – what price will maximize your profitability?The chief executive officer of a publishing company says she is indifferentbetween the certainty of receiving $7,500 and a gamble where there is a 0.5 chance of receiving $5,000 and a 0.5 chance of receiving $10,000. a). Does she seem to be a risk averter, a risk lover, or risk- neutral? Explain. b). What is the coefficient of variation of the risky option (gamble)?A Bank has foreclosed on a home mortgage and is selling the house at auction. There are two bidders for the house, Zeke and Heidi. The bank does not know the willingness to pay of these three bidders for the house, but on the basis of its previous experience, the bank believes that each of these bidders has a probability of 1/3 of valuing it at $800,000, a probability of 1/3 of valuing at $600,000, and a probability of 1/3 of valuing it at $300,000. The bank believes that these probabilities are independent among buyers. If the bank sells the house by means of a second- bidder, sealed-bid auction, what will be the bank’s expected revenue from the sale? The answer is 455, 556. Please show the steps in details thank you!