Reference no: EM1356191
An angel investor is considering investing in one of two start up businesses and is evaluating the expected returns along with the risk of each option in order to choose the better alternative.
business 1 is an innovative protein energy drink which has ENVP of 100, 000 with a standard deviation of 40,000.
business 2 is a unique chicken wings dipping sauce with an ENVP of 60,000 and a standard deviation of $25,000.
a) Apply the coefficient-of-variation decision criterion to these alternatives to find out which is preferred by the angel investor, assuming that he/she is risk-averse.
b) Apply the maximin criterion, assuming that the worst outcome in Business 1 is to lose $5,000, whereas the worst outcome in Business 2 is to make only $5,000 in profit.
c) If you were the angel investor, what is your certainty equivalent for these two projects? Are you risk-averse, risk-neutral, or risk-lover?
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