# A small drug development company has submitted a

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18. A small drug development company has submitted a request for a new drug to be approved. There are three possible outcomes. The estimated probability of each outcome is shown in parentheses. The drug might be approved (30%), the drug might be rejected (30%), or the company might be asked to do more tests and resubmit the request (40%). The price of a share in the firm will be 50 if the drug is accepted, 20 if the drug is rejected and 30 if resubmission is requested. a) The expected value of the company s stock price exceeds 35. b) The standard deviation of the company s stock price is less than 12. c) The variance of the company s stock price is less than 140. d) All of the above.

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9 19. Two friends, Bob and Maureen, each receive job offers from The Coca Cola Company and PepsiCo Inc. These jobs are perfectly identical - only the salaries differ. The Coca Cola Company offers to pay a fixed salary of \$50,000, whereas PepsiCo Inc. pays in accordance to the annual sales. Particularly, PepsiCo Inc. pays \$80,000 when sales are high (70% chance) and \$30,000, otherwise. Bob and Maureen can only accept one offer each. 20. Consider two individuals, Alice and Bob, with the same initial wealth, considering two risky projects, A and B. Both are risk averse, but Bob is more risk averse than Alice.