5. An oil company wants to drill in a new location. A preliminary geological study suggests that there is a 20% chance of finding a small amount of oil, a 50% chance of a moderate amount and a 30% chance of a large amount of oil. The company has a choice of either a standard drill that simply burrows deep into the earth or a more sophisticated drill that is capable of horizontal drilling and can therefore extract more but is far more expensive. The following table provides the payoff table in millions of dollars under different states of the world and drilling conditions. Small Medium Large Standard $20M $30M 850M Horizontal -$20M $40M $90M (a) Find the mean payoffs of the two different drilling strategies. (b) Find the variance in payoffs of each strategy (c) Which strategy would you advocate for and why? Refer to question 5(c). What is the risk (standard deviation) for the standard drill (in millions)? (Just enter the number to one decimal place.) Answer: Refer to question 5(c). What is the risk (standard deviation) for the horizontal drill (in millions)? (Just enter the number to one decimal place.) Answer: Finish attempt... Assignment 4 a Jump to