Unique versus Market Risk. Sassafras Oil is staking all its remaining capital on wildcat exploration off the Côte d’Huile. There is a 10 percent chance of discovering a field with reserves of 50 million barrels. If it finds oil, it will immediately sell the reserves to Big Oil, at a price depending on the state of the economy. Thus the possible payoffs are as follows:

Is Sassafras Oil a risky investment for a diversified investor in the stock market—compared, say, to the stock of Leaning Tower of Pita, described in problem 14? Explain.

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Value of Reserves, per Barrel Boom $4.00 Normal economy $5.00 Recession $6.00 Value of Reserves, 50 Million Barrels $200,000,000 $250,000,000 $300,000,000 Value of Dryholes 0 0