Your friend is contemplating buying a local restaurant. He has assessed the lifetime profits, including resale, to be $11 million with 15% chance, $6 million with 60% chance or $3 million with 25% chance. Knowing the most your friend would pay for the estaurant is $6.2 million, what can you infer about the situation? O A. The expected payoff of the restaurant is $6 million, the risk-discount being offered by your friend is $200,000 and your friend is risk seeking with respect to this purchase. В. The expected payoff of the restaurant is $6 million, the risk-premium being required by your friend is $0 and your friend is risk neutral with respect to this purchase.

MATLAB: An Introduction with Applications
6th Edition
ISBN:9781119256830
Author:Amos Gilat
Publisher:Amos Gilat
Chapter1: Starting With Matlab
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Q14

Your friend is contemplating buying a local restaurant. He has assessed the lifetime
profits, including resale, to be $11 million with 15% chance, $6 million with 60% chance
or $3 million with 25% chance. Knowing the most your friend would pay for the
restaurant is $6.2 million, what can you infer about the situation?
o A. The expected payoff of the restaurant is $6 million, the risk-discount being offered by your friend is
$200,000 and your friend is risk seeking with respect to this purchase.
O B. The expected payoff of the restaurant is $6 million, the risk-premium being required by your friend is
$0 and your friend is risk neutral with respect to this purchase.
o C. The expected payoff of the restaurant is $6.2 million, the risk-premium being required by your friend is
$133,000 and your friend is risk averse with respect to this purchase.
o D. The expected payoff of the restaurant is $6.333 million, the risk-premium being required by your
friend is $133,000 and your friend is risk averse with respect to this purchase.
Transcribed Image Text:Your friend is contemplating buying a local restaurant. He has assessed the lifetime profits, including resale, to be $11 million with 15% chance, $6 million with 60% chance or $3 million with 25% chance. Knowing the most your friend would pay for the restaurant is $6.2 million, what can you infer about the situation? o A. The expected payoff of the restaurant is $6 million, the risk-discount being offered by your friend is $200,000 and your friend is risk seeking with respect to this purchase. O B. The expected payoff of the restaurant is $6 million, the risk-premium being required by your friend is $0 and your friend is risk neutral with respect to this purchase. o C. The expected payoff of the restaurant is $6.2 million, the risk-premium being required by your friend is $133,000 and your friend is risk averse with respect to this purchase. o D. The expected payoff of the restaurant is $6.333 million, the risk-premium being required by your friend is $133,000 and your friend is risk averse with respect to this purchase.
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