'Your company is comparing three projects that have risks associated with them. Based on the data in the ng data in the table, which should be chosen? Project C EUAW -$5,500 $7,200 $1,900 Project A Project B Probability 0.3 0.45 0.25 Probability 0.1 0.4 Probability 0.3 0.2 EUAW EUAW -$2,400 $2,000 $3,500 $3,000 -$2,300 $3,800 0.5 0.5

Solve (d) and (e) please.

Don’t use excel Show work

5.

5. Exercise 2.6 Two investments have the following expected returns (net present values) and standard deviation of returns: Project Expected Returns ($) Standard Deviation ($) A B Which project is riskier? Project B Project A 50,000 250,000 30,000 125,000

E2

2 Consider the two investments listed below with possible outcomes and probabilities: INVESTMENT (in $1000) SAFE RISKY INVESTMENT AMOUNTⓇ 40+ 40+ GOOD SCENARIO OUTCOME 45+ 80+ AVERAGE+ SCENARIO PROB OUTCOME 0.40* 0.40€ 42+ 45+ BAD+ SCENARIO PROB OUTCOME PROB 0.20 35+ 0.20 10+ 0.40€ 0.40+ b) a) Suppose I have utility function U(*) = (x)2. What is the expected utility from each investment? Which investment will I choose, if any? Show and explain your work and provide the intuition. c) What is the value of the risk premium for the SAFE investment? Show and explain your work and provide the intuition. d) What is the value of the risk premium for the RISKY investment? Show and explain your work and provide the intuition.< +

8

Only typed Answer

1. Individual Problems 17-1 Malaysia You're the manager of global opportunities for a U.S. manufacturer that is considering expanding sales into Asia. Your market research has identified the market potential in Malaysia, the Philippines, and Singapore as described in the following table:   Success Level Big Mediocre Failure Malaysia       Probability 0.7 0.1 0.2 Units 1,300,000 416,000 0 Philippines       Probability 0.2 0.3 0.5 Units 600,000 360,000 0 Singapore        Probability 0.4 0.3 0.3  Units 1,500,000 750,000 0   The product sells for $20, and each unit has a constant marginal cost of $16. Assume that the (fixed) cost of entering the market (regardless of which market you select) is $500,000. In the following table, enter the expected number of units sold, and the expected profit, from entering each market. Market Expected Number of Units Sold Expected Profit Malaysia     Philippines     Singapore…