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b) Trump is participating on a game show and has selected the prize that lies at the Box 2. The game's host tells him that
b) Trump is participating on a game show and has selected the prize that lies at the Box 2. The game's host tells him that that is a 50 percent chance to have a worth $10,000 gold bracelet and a 50 percent chance to have nothing. Before the box is opened, the game's host give him an option for selling to him what is in the box for $6000 if he pays him $3000 for this option. i) If Trump cares the expected dollar values of various outcomes only, will he buy this option? (3 marks) ii) Why does Trump's degree of risk aversion might affect his willingness to buy this option? (3 marks) b) Trump is participating on a game show and has selected the prize that lies at the Box 2. The game's host tells him that that is a 50 percent chance to have a worth $10,000 gold bracelet and a 50 percent chance to have nothing. Before the box is opened, the game's host give him an option for selling to him what is in the box for $6000 if he pays him $3000 for this option. i) If Trump cares the expected dollar values of various outcomes only, will he buy this option? (3 marks) ii) Why does Trump's degree of risk aversion might affect his willingness to buy this option
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