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- ??A company estimates that 0.7% of their products will fail after the original warranty period but within 2 years of the purchase, with a replacement cost of $50.If they offer a 2 year extended warranty for $4, what is the company's expected value of each warranty sold?If the famous insurance company, Lloyd’s of London, insures a $3 million Monet painting for $5000 per year. And, in each year, the painting has a .00021 chance of being stolen according to the Lloyd’s research team? From Lloyd’s perspective, find the expectation for insuring this painting for one year
- A company estimates that 0.6% of their products will fail after the original warranty period but within 2 years of the purchase, with a replacement cost of $250. If they offer a 2 year extended warranty for $39, what is the company's expected value of each warranty sold?Project A has the following probability distribution of expected future returns: Probabality Net Future Worth0.1 -$16,0000.2 4,0000.4 16,0000.2 25,0000.1 35,000What is the expected future worth for Project A?(a) $9,450 (b) $10,800 (c) $14,100 (d) $12,300Q3. Suppose that the market default rate for bonds is given by 0.01, i.e., the probability the market believes that the company may not be able to pay the owner of the bonds is 0.01. Now a credit default swap (CDS) is sold at fair price $ 0.01 per unit. Ackman expects that the true default rate is 0.05, not 0.01. Ackman bought 67 billion units of CDS at the price $ 0.01 per unit. a. Suppose that Ackeman's expectation about the default rate is not correct. I.e., the true default rate for bonds is given by 0.01. Find the cost of the purchase. Find the expected payoff. Find the profit. b. Suppose that Ackeman's expectation is correct. Find the cost of the purchase. Find the expected payoff. Find the profit.
- You own a fruit garden. Choose one of the followings by showing clear calculation. Yearly inflation rate is 5%. Option A: Invest 3 lac BDT to buy cultivation tools/factory. At end of every year you may gain high (8 lac BDT), medium (3 lac BDT) or low (1 lac BDT) with respective probability 0.3, 0.4 and 0.3 for the next 5 years. Option B: Lease the garden. The lessee pays 3.5 lac BDT at the beginning of each year for the next 5 years. There is risk of plant mortality due to hyper production. Loss may be high: 9 lac BDT (probability 0.1) or low: 1 lac BDT. This loss is realized at the end of 5th year only.A company estimates that 0.6% of their products will fail after the original warranty period but within 2 years of the purchase, with a replacement cost of $400. If they offer a 2 year extended warranty for $42, what is the company's expected value of each warranty sold?A company estimates that 0.1% of their product will fail after th original warranty period but within 2 years of the purchase, with a replacement cost of $350. If they offer a 2 year warranty for $18 , what is the company's expected value of each warranty sold?