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Please help me with this question. It is an important exercise to me. Exercise 1. Mark is obtaining a mortgage. Two uncertainties relevant to the
Please help me with this question. It is an important exercise to me.
Exercise 1. Mark is obtaining a mortgage. Two uncertainties relevant to the Mark's value for the mortgage note are StatCo's (borrower) sales (strong or weak) and whether they will default (yes or no) in the next year. Mark is risk neutral. The prospect of not buying the loan is 0. If Mark buys the mortgage note, the prospects are as follows: Value 10 30 Sales Default(Smillion) Strong No Yes No Yes Weak Weak 35 Mark's probabilites are P(Strong sales)=0.9 P(Default | Strong sales)=0.05 P(Default l weak sales):0.35 1) What is Mark's CE (certain equivalent) for the mortgage note? 2) Andrew is also considering to buy the mortgage note. His probabilities are the same as Mark's. Andrew has a exponential u-curve with a risk tolerance of 50 million. Calculate Andrew's value of clairvoyance (VOC) on the Sales uncertainty! 3) What is Andrew's VOC on the Default uncertaintyStep by Step Solution
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