A business opportunity has a 10% chance of being worth $25,000 next year if the
economy improves, a 30% chance of being worth $8,000 if the economy worsens, and a
60% chance of being worth $15,000 if the economy stays the same. Develop a
state-contingent payoff table and calculate the expected future value of the business
and the fair value of the business opportunity today if the appropriate cost of capital is
14%.

Question

Quizplus · Accepted Answer

The Answer of A business opportunity has a 10% chance of being worth $25,000 next year if the
economy improves, a 30% chance of being worth $8,000 if the economy worsens, and a
60% chance of being worth $15,000 if the economy stays the same. Develop a
state-contingent payoff table and calculate the expected future value of the business
and the fair value of the business opportunity today if the appropriate cost of capital is
14%.

A Business Opportunity Has a 10% Chance of Being Worth