Q. Young is thinking about paying for a stock market newsletter. A friend of Young said that these types of letters could predict very accurately whether the market would be good, fair, or poor. Then, based on these predictions, Allen could make better investment decisions.
(a) Illustrate what is the most that Allen would be willing to pay for a newsletter?
(b) Young now believes that a good market will give a return of only 11% instead of 14%.
Will this information change the amount that Allen would be willing to pay for the newsletter? If your answer is yes, Find out the most that Allen would be willing to pay, specified this new information.