Steps for present value with risk aversiona figure the, Ask an Expert

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Steps for present value with risk aversion:

(a) Figure the dollar amount of each payment

(b) Apply the discount factor

(d) Apply probabilities

(e) Sum

You have $50,000 to invest for 2 years. At the end of two years, you will receive 20 percent of second-year profits.

Use 7 percent as the relevant interest rate. (No contract fee).

Second year profits:

25% chance of $150,000

50% chance of $250,000

25% chance of $500,000

Would you make the investment if you use present value with risk aversion?

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Financial Management, Finance

Category:- Financial Management
Reference No.:- M92428952

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