Mr. King and Ms. Almeda are two candidates for the same financial securities sales position.

Mr. King has a consistent history of selling and trading securities with profitable results for past employers. You as the potential employer have 100% certainty he will succeed if you hire him and bring in $500,000 more revenue each year.

Ms. Almeda is an aerospace engineer with exceptional analytical skills. She has no experience in finance or sales but wants to break into this field. She has a track record of succeeding in all her previous jobs requiring a strategic view, problem solving and interpersonal relations. If you hire her, you feel she has a 70% chance of succeeding and bring $1,200,000 revenue to your company this year and a 30% chance of losing $300,000 for your firm this year.

Each candidate if hired will be paid $120,000 and you only have one opening. If the candidate is successful, you expect him or her to stay with your company for three years. If the candidate lost money for your company, you would terminate him of her after the first probationary year.

A) Please determine the expected value of each candidate if hired. You need to show your work to calculate expected values.

B) If you are risk neutral, which candidate would be the better hire?

Answer rating: 100% (QA)

To calculate the expected value for each candidate if hired we need to consider the potential outcom... View the full answer