A speculator is considering the purchase of a commodity which he reckons has a 40% chance of increasing in value over the next month. If he purchases the commodity and it does increase in value the speculator will make a profit of about $100,000, otherwise he will lose $40,000.

Assuming that the expected monetary value criterion is applicable, determine whether the speculator should purchase the commodity.

Perform a sensitivity analysis on the speculators estimate of the probability of a price increase

and interpret your result.

What reservations would you have about applying the expected monetary value criterion in this context