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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
- 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 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.
- 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?
- 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?
- 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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