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John Smith is considering the purchase of a used car that has a bank book value of R160,000. He believes that there is a 20%
- John Smith is considering the purchase of a used car that has a bank book value of R160,000. He believes that there is a 20% chance that the car's transmission is damaged. If the transmission is damaged, the car would be worth only R120,000 to Smith. What is the expected value of the car to Smith?
- A risk-averse individual is offered a choice between a gamble that pays R10,000 with a probability of 25% and R1,000 with a probability of 75%, or a payment of R3250. Which would he choose?
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Managerial Economics Theory Applications and Cases
Authors: Bruce Allen, Keith Weigelt, Neil A. Doherty, Edwin Mansfield
8th edition
978-0393124491, 393124495, 978-0039391277, 393912779, 978-0393912777
