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Question: z an investor has the opportunity to invest 450000 in...

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Z. An investor has the opportunity to invest $450,000 in a project that with probability p will be successful and with probability (1-p) will fail. If the project is successful she will get back S1 Million (thus making a profit of S550,000), while if the project fails she will get back nothing (that is, she will lose her initial investment of $450,000). The alternative is to put the $450,000 into a savings account that pays 5% interest. (a) Represent her two options as lotteries where the outcomes are expressed in terms of her final wealth (assuming that her initial wealth consists of $450,000). (b) Represent her two options as lotteries where the outcomes are expressed in terms of net returns ( e) Using the wealith loteris and assumig and that she is risk-meutral, what will e (d) Using the net-return lotteries and assuming that p-\ and that she is risk-neutral, what will she final wealth -initial wealth) choose? choose?

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