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Jerry loves to sing, and he wants to be a superstar. To pursuit his dream, he will need to enter a celebrity school. This is

  1. Jerry loves to sing, and he wants to be a superstar.
    1. To pursuit his dream, he will need to enter a celebrity school. This is not an easy, and the likelihood of success is 0.001. If he is successful, he will earn a lifetime income of $1,000,000,000. If he is not successful, he will earn a lifetime income of $500,000. Calculate his expected lifetime income and the standard deviation if he enters the celebrity school.
    2. Alternatively, he can go to a university and earn a lifetime income of $2,000,000. Assuming John is risk neutral and very good in economics, which school will he enter?
    3. If there is a Gypsy who can see through a crystal ball and tell him if he will be a successful superstar, what is the maximum John will be willing to pay for the Gypsy?
    4. If John is risk averse, without doing the math, do you think the amount will be larger or smaller than your answer in part c?

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