Please show your work

Steps for present value with risk aversion:

(a) Figure the dollar amount of each payment

(b) Apply the discount factor

(c) Calculate utilities

(d) Apply probabilities

(e) Sum

You have been offered an opportunity to invest in the launch of a new lightweight fishing rod. In exchange for providing investment funds today, you would receive a one-time payment equal to 50% of first-year profits.

You will receive your payment one year from now, and you will use a 5% interest rate to discount the present value of your profit payment over that one year. You have attached the following probabilities to the outcomes of first-year profits:

50% probability of $84,000

25% probability of $97,075

25% probability of $115,975

Keep in mind that you would receive only 50% of the first-year profits. There is no contract fee for this arrangement.

If you are risk averse, what is your expected utility from the first-year profits?

Based on your expected utility calculation, would you make the investment if you were required to provide $50,000 in funding today?