Suppose that an investment can yield three possible cash flows: $5,000; $1,000; or $0. The probability of
Question:
Suppose that an investment can yield three possible cash flows: $5,000; $1,000; or $0. The probability of each outcome is 1/3.
a. What is the expected value and standard deviation of the investment?
b. How much would a risk-neutral person be willing to pay for the investment?
c. How much would a risk-averse person be willing to pay for the investment?
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Related Book For 
Managerial Economics and Organizational Architecture
ISBN: 978-0073375823
5th edition
Authors: James Brickley, Jerold Zimmerman, Clifford W. Smith Jr
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