EQUITY METHOD Pension information: Current Salary 40000 Years until retirement 3 Annual...
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Accounting
EQUITY METHOD
Pension information:
Current Salary 40000 Years until retirement 3 Annual compensation increases 5% Discount rate 10% Benefit 2%
1) Construct the pension table.
PART TWO
a) Consider a risky project, D, with an outcome $4 with a probability of 60% and $16 with a probability of 40%. Compute EV, the expected value of D.
b) Mr. Ralph wishes to invest in D. Ralph has a utility function given by U(x) = 0.25x^2 + 10. Compute CE for Ralph. Is he risk averse, risk-neutral or risk loving given his CE? Explain.
c) Mrs. Ralph also wishes to invest in D. Mrs. Ralph has a utility function given by U(x) = 10(x)^(1/2). Compute CE for Mrs. Ralph. Is ahe risk averse, risk-neutral or risk loving given her CE? Explain.
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