Suppose an oil company is thinking of buying some land for $11,000,000. There is a 60% chance of economic growth and a40% chance of recession. The probability of discovering oil is 46% when there is economic growth and 34% when there is arecession. If there is economic growth and the oil company discovers oil, the value of the land will triple. If they do notdiscover oil, the value of the land will decrease by 11%. If there is a recession and the company discovers oil, the value ofthe land will increase by 50%. If they do not discover oil, the land will decrease in value by 80%.What is the expected value of the investment? Give your answer to the nearest dollar. Avoid rounding within calculations.Select the correct interpretation of the expected value.O The expected value represents the mean investment value for a $11,000,000 land purchase. The oil company shouldinvest in the land because, on average, the investment is profitable.O The expected value provides the total cost of investing in the land. The oil company should not invest in the landbecause the investment costs will exceed $11,000,000.O The expected value represents what the actual investment value will be for this land purchase of $11,000,000. Thecompany should make the investment because the expected value predicts a profitable investment value.O The expected value is the mean investment value for the land purchase of $11,000,000. The oil company should notinvest in the land because the expected value indicates an average loss in investment.O The expected value represents the average profit expected for a land purchase of $11,000,000. Thus, the companyshould invest in the land because the expected value is greater than zero.27%

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Answered: Suppose an oil company is thinking of…

MATLAB: An Introduction with Applications

6th Edition

ISBN:9781119256830

Author:Amos Gilat

Publisher:Amos Gilat

Chapter1: Starting With Matlab

Section: Chapter Questions

Problem 1P

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An option to buy a stock is priced at $210. If the stock closes above 30 on May 15, the option will be worth $900. If it closes below 20, the option will be worth nothing, and if it closes between 20 and 30 (inclusively), the option will be worth $180. A trader thinks there is a 45% chance that the stock will close in the 20–30 range, a 25% chance that it will close above 30, and a 30% chance that it will fall below 20 on May 15. How much do they expect to gain? Should they buy the stock option? Explain.
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