18.

Assume an entrepreneur would like to undertake a project that costs $10 million. The project will have a payoff of $13 million 95% of the time. However, 5% of the time, the project will suffer a loss and will only pay off $5 million. In the event of a loss, the entrepreneur can pay $6 million to fix the loss and return the project's payoff to $13 million. Assume that the entrepreneur would like to invest $2 million of his own money into the project and will therefore like to borrow the remaining $8 million.

What is the maximum the entrepreneur would be willing to pay for full insurance?

Group of answer choices

$0.20 million

$0.44 million

$0.42 million

$0.40 million

19.

Through the design of compensation contracts, firms can provide incentives for managers that help to re-align managerial and shareholder interests. More specifically, ______ in executive compensation can offset the ______ of a managers utility function.

Group of answer choices

concavity, concavity

concavity, convexity

convexity, convexity

convexity, concavity