EXERCISE #1: Assuming that you are RISK AVERSE,

For each of the following 3 alternatives choose one of the 2 options by circling either a) or b). For each choice calculate the expected value (EV) and briefly explain your logic. Note the amount certain is also an expected value.

1. a) $50,000

OR

b) a coin single flip with a

1. 50% chance of $90,000 (Heads)

2. 50% chance of $15,000 (Tails)

EV = $

2. a) $50,000

OR

b) 100 coin flips each of which has a

1. 50% chance of $900 (Heads)

2. 50% chance of $150 (Tails)

EV = $

3. a) $50,000

OR

b) 400 coin flips each of which has a

1. 50% chance of $225 (Heads)

2. 50% chance of $37.50 (Tails)

EV = $