Keep working in current job t=0 End of the 1st yr Benefits $40,000 Costs $0 Becoming...
Fantastic news! We've Found the answer you've been seeking!
Question:
Transcribed Image Text:
Keep working in current job t=0 End of the 1st yr Benefits $40,000 Costs $0 Becoming a computer programmer Benefits $0 Costs $0 t=1 End of the 2nd yr $40,000 $0 $55,000 $0 t=2 End of the 3rd yr $40,000 $0 $55,000 $0 t=4 t=3 End of End of the 4th yr the 5th yr $40,000 $40,000 $0 $0 $55,000 $0 $55,000 $0 t=5 End of the 6th yr $40,000 $0 $55,000 $0 Your crush is running for Prime Minister of Canada and the chance of winning is 60%. You are thinking of quitting your current job, initiating a relationship with your crush, and contributing in their campaign by $10,000. If they win the election, you will receive benefits worth $120,000 each year for four years and zero in the last year of your life. If they lose the election, you receive nothing. e. Calculate the net present value of building a relationship with your crush today and contribute in their campaign. Notice that the cost is certain, but the benefits are un- certain. [Hint: interest rate is 10%.] f. Assume you are risk-neutral. Which one is the best for you: Plan A: keep working in your current job Plan B: quit your job, pay $10,000 tuition for a program in computer program- ming to receive an income of $55,000 per year Plan C: quit your job, initiate a relationship with your crush, and contribute in their campaign by $10,000, receive benefits worth $120,000 each year for four years If your crush wins the election For parts (g)-(i), assume your utility as a function of present value of your wealth is U=W1/3 g. Calculate the expected wealth and expected utility for each plan. Which plan is the best for you? [Hint: do not forget to consider costs.] h. Based on your answer in part (g), are you risk averse/ neutral/ lover? Explain why. i. A Relationship Insurance company wants to buy your risk and provide you a certain level of utility. The insurance offer is: "if your crush wins, you pay the insurer $X each year from the benefit you receive for four years; if your crush loses, the insurer pays you $Y each year for four years." What values of X and Y convince you to choose option C and buy this insurance? Keep working in current job t=0 End of the 1st yr Benefits $40,000 Costs $0 Becoming a computer programmer Benefits $0 Costs $0 t=1 End of the 2nd yr $40,000 $0 $55,000 $0 t=2 End of the 3rd yr $40,000 $0 $55,000 $0 t=4 t=3 End of End of the 4th yr the 5th yr $40,000 $40,000 $0 $0 $55,000 $0 $55,000 $0 t=5 End of the 6th yr $40,000 $0 $55,000 $0 Your crush is running for Prime Minister of Canada and the chance of winning is 60%. You are thinking of quitting your current job, initiating a relationship with your crush, and contributing in their campaign by $10,000. If they win the election, you will receive benefits worth $120,000 each year for four years and zero in the last year of your life. If they lose the election, you receive nothing. e. Calculate the net present value of building a relationship with your crush today and contribute in their campaign. Notice that the cost is certain, but the benefits are un- certain. [Hint: interest rate is 10%.] f. Assume you are risk-neutral. Which one is the best for you: Plan A: keep working in your current job Plan B: quit your job, pay $10,000 tuition for a program in computer program- ming to receive an income of $55,000 per year Plan C: quit your job, initiate a relationship with your crush, and contribute in their campaign by $10,000, receive benefits worth $120,000 each year for four years If your crush wins the election For parts (g)-(i), assume your utility as a function of present value of your wealth is U=W1/3 g. Calculate the expected wealth and expected utility for each plan. Which plan is the best for you? [Hint: do not forget to consider costs.] h. Based on your answer in part (g), are you risk averse/ neutral/ lover? Explain why. i. A Relationship Insurance company wants to buy your risk and provide you a certain level of utility. The insurance offer is: "if your crush wins, you pay the insurer $X each year from the benefit you receive for four years; if your crush loses, the insurer pays you $Y each year for four years." What values of X and Y convince you to choose option C and buy this insurance?
Expert Answer:
Answer rating: 100% (QA)
e To calculate the net present value NPV of building a relationship with your crush and contributing to their campaign we need to calculate the presen... View the full answer
Related Book For
Posted Date:
Students also viewed these accounting questions
-
A machine costing $216,000 with a four-year life and an estimated $20,000 salvage value is installed in Luther Company's factory on January 1. The factory manager estimates the machine will produce...
-
Canada Tran jet costs $ 36 comma 000 comma 000 and is expected to fly 360 comma 000 comma 000 miles during its 8 ?-year life. Residual value is expected to be zero because the plane was used when...
-
A lawyer is contemplating quitting her current job with a major corporation (where she earns an annual salary of $110,000) to open her own law practice. She estimates that the total cost of operating...
-
Suppose that a nonnegative function y = (x) has a continuous first derivative on [a, b]. Let C be the boundary of the region in the xy-plane that is bounded below by the x-axis, above by the graph of...
-
Standards of ethical conduct for management accountants have been divided into four major responsibilities. Describe each of the four in 20 words or fewer.
-
The balance of owner's capital at the beginning of the year was $50,000 and at the end of the year was $67,000. No additional capital was contributed during the year. Withdrawals were $23,000. What...
-
What is driving the rise of the IoT?
-
On January 1, 2013, Baldwin Products, as lessee, leases a machine used in its operations. The annual lease payment of $10,000 is due on December 31 of 2013, 2014, and 2015. The machine reverts to the...
-
During Heaton Company's first two years of operations, it reported absorption costing net operating income as follows: Sales (@ $61 per unit) Cost of goods sold (@ $29 per unit) Gross margin Selling...
-
1. Which of the two basic reporting approaches for the cash flows from operating activities did Lowes use? Is this the same as what The Home Depot used? 2. What amount of cash did Lowes receive from...
-
Discuss and compare the terms confiscation, expropriation, and domestication. Make sure you cite examples of each research to find actual examples where Multinationals were affected due Political...
-
Particle 1 , carrying charge \(q\), particle 2 , carrying charge \(2 q\), and particle 3 , carrying charge \(-q\), are located at the vertices of an equilateral triangle of side \(\ell\) in the \(x...
-
Two charges of equal magnitude, \(2 \mu \mathrm{C}\), are separated by a \(2 \mathrm{~cm}\) distance. Compare the electric force if the separation is increased to \(6 \mathrm{~cm}\).
-
Environmental engineers, concerned about the effects of releasing warm water from a power plants' cooling system into a Great Lake, decided to sample many organisms both inside and outside of a warm...
-
Two identical metal spheres carrying the same charge hang by insulating strings from the same point. The balls repel each other so that they hang in the air some distance apart. If you touch one of...
-
Prove that for the Poisson distribution \[\frac{f(x+1 ; \lambda)}{f(x ; \lambda)}=\frac{\lambda}{x+1}\] for \(x=0,1,2, \ldots\)
-
Create a function to insert a new product into an existing order, include the product id, unit price, quantity. The output of the function is the message to notify the calling program whether...
-
Which of the following gives the range of y = 4 - 2 -x ? (A) (- , ) (B) (- , 4) (C) [- 4, ) (D) (- , 4] (E) All reals
-
Choose two companies, one (such as software firm SAS) that you believe is known for outstanding employee relations, and one that is known for less harmonious employee relations. Using any sources...
-
What items are typically included in a job description? What items are not shown?
-
1. Should this plan be extended to pressers in the other stores? 2. Should other employees (cleaner/spotters, counter people) be put on a similar plan? Why? Why not? If so, how, exactly? 3. Is there...
-
Consider the multiple linear regression model fit to the baseball data in Problem 3.41. Problem 3.41 Consider the 2016 major league baseball data in Table B.22. While team ERA was useful in...
-
Consider the simple linear regression model fit to the rental price data from Problem 2.36. Data From Problem 2.36 Table B.24 contains data on median family home rental price and other data for 51 US...
-
Consider the multiple linear regression model fit to the rental price data in Problem 3.42. Problem 3.42 Table B.24 contains data on median family home rental price and other data for 51 US cities....
Study smarter with the SolutionInn App