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Consider a person with the following utility function over wealth: u(w) = ew, where e is the exponential function (approximately equal to 2.7183) and w = wealth in hundreds of thousands of dollars. Suppose that this person has a 40% chance of wealth of $50,000 and a 60% chance of wealth of $1,000,000 as summarized by P(0.40, $50,000, $1,000,000). a. What is the expected value of wealth? b. Construct a graph of this utility function (recall your excel?). c. Is this person risk averse, risk neutral, or a risk seeker? d. What is this person’s certainty equivalent for the prospect? In your response be clear which part you are addressing.
The optimal portfolio:
Suppose Whole Foods’ projected free cash flow for next year is FCF = $8.75 billion, and due to expected lower revenues and slower growth sales FCF is expected to grow at a constant rate of only 4.5% into the infinite future. The company’s weighted av..
generally speaking many companies are interested in the potential cost savings of using the same product and
The company share price in the stock market is $42. The equity book value per share according to the balance sheet is $56. There are 540 million shares outstanding. What is the company’s equity price to book ratio?
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Consider a lottery that pays to the winner an annuity of $950 that begins at the end of the first year and continues at the end of each consecutive year for a total of 9 years with one exception. Because of high administrative costs associated with r..
You purchased 5,400 shares in the New Pacific Growth Fund on January 2, 2010, at an offering price of $63.90 per share. The front-end load for this fund is 5 percent, and the back-end load for redemptions within one year is 2 percent. Assume that the..
Experts advise that your debt payments to take home pay ratio should not exceed 20%. A homeowner has the following monthly income and expenses: What is the homeowner's "debt payments to take home pay" ratio?
The first financial statement a firm produces is the _____.
Randal Flapjack is a retired short-order cook living on a fixed income in the state of Utopia where all financial markets are perfectly efficient. What is Sugarcooky's current price? What will be the value of his remaining shares at the end of a year..
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