Refer to the attachment.

1. Agency theory presents the fim as a combination of competing interest groups, two of which are shareholders and management. REQUIRED Discuss how the firm's attitude to risk might vary depending on whether shareholders objectives or management oriented goals predominate in the firm's planning, (10 marks) (b) The directors of Gatimu Led are in the process of establishing shareholders utility function. They have approached Mr. Kilo, the principle shareholder and given him the following lotterice- 1. 05 chance of receiving Sh. 0 and 05 chance of receiving Sh. 100,000. He is willing to pay a maximum of Sh. 45,000 for this lottery. 04 chance of receiving Sh.45,000 and 0.6 chance of receiving Sh.100,0800. He is willing to pay a maximum of Sh. 85.000 for this lottery. 03 chance of receiving Sh. 0 and 07 chance of receiving Sh. 45,000. He is willing to pay a maximum of Sh. 301000 for this lottery. Assume that urile values of 0 and I are assigned to a pair of wealth representing the two extremes (Sh 0 and sh. 100,000 respectively). REQUIRED Compute the utile value of Sh. 45,000, Sh. 85,000 and Sh 301000. Construct the utility function of Mr. Kilo and state his risk attinak. (10 marks]4. An investor makes decisions on the basis of the utility function w(x) = vx where x > 0. The investor is considering investing in shares, and assumes that an investment of A in share / will accumulate to AX, at the end of one year, where X, has a lognormal distribution with parameters , and @. Suppose that the investor has a choice between Share | and Share 2. (a) Show that the decision whether to invest in Share I or in Share 2 is independent of A. (b) Suppose that for Share I. A = 0.09 and of = 0.02, and for Share 2. = 0.08. For what range of values for o, will the investor choose to invest in Share 27 (c) Now suppose that the expected accumulation is the same under each share but the variance of the accumulation is smaller for Share 1. Show that the investor will choose Share I and give an interpretation of this result