Answer the following 1-6

Conceptual and Analytical Problems 1. Consider a game in which a coin will be ipped three times. For each heads you will be paid $ 100. Assume that the coin comes up heads with probability 2/3. (L01) ' 3. Construct a table of the possibilities and probabilities in this game. b. Compute the expected value of .the game. c. How much would you be willing to pay to play this game? d. Consider the elfect of a change in the game so that if tails comes up two times in a row. you get nothing. How would your answers to parts ac change? 2.* Why is it important to be able to quantify risk? (L02) 3. You are the founder of IGRO, an Internet rm that delivers groceries. (LO-4)" 3. Give an example of an idiosyncratic risk and a systematic risk your company faces. b. As founder of the company, you own a signicant portion of the rm, and your personal wealth is highly concentrated in IGRO shares. What are the risks that you face, and how should you try to reduce them? 4. Assume that the economy can experience high growth, normal growth, or reces- sion. Under these conditions you expect the following stock market retums for the coming year: (L01) State pf the Economy Frababiiity - Return High Growth Normal Growth Recession 3. Compute the expected value of a $1,000 investment over the coming year. If you invest $1,000 today, how much money do you expect to have next year? What is the percentage expected rate of return? . b. Compute the standard deviation of the percentage return over the coming year. c. Ifthe risk-free return is 7 percent, what is the risk premium for a stock market investment? 5. Using the information from the table in Problem 4, calculate in dollar terms? the value at risk associated with the $1,000 investment. (L02) 6. Car insurance companies sell a large number of policies. Explain how this prac- tice minimizes their risk. (L04) '