Use the following information to answer the question(s)below.
Suppose that you have received two job offers.Rearden Metal offers you a contract for $75,000 per year for the next two years while Wyatt Oil offers you a contract for $90,000 per year for the next two years.Both jobs are equivalent.Suppose that Rearden Metal's contract is certain,but Wyatt Oil has a 60% chance of going bankrupt at the end of the year.In the event that Wyatt Oil files for bankruptcy,it will cancel your contract and pay you the lowest amount possible for you to not quit.If you do quit,you expect you could find a new job paying $75,000 per year,but you would be unemployed for four months while searching for this new job.
-If you take the job with Wyatt Oil,then,in the event of bankruptcy,the least amount that Wyatt Oil would pay you next year is closest to:

Question

Quizplus · Accepted Answer

If you take the job with Wyatt Oil, your expected value of income for the first year is:
$90,000 * 0.4 (probability of no bankruptcy) + $75,000 * 0.6 (probability of bankruptcy but finding a new job) = $81,000
If Wyatt Oil goes bankrupt, the least amount they would pay you to not quit is the amount that compensates you for the four months of unemployment. This amount is $75,000 / 12 * 4 = $25,000. Therefore, the total amount you would receive is $25,000 + ($90,000 - $25,000) * 0.4 = $54,000. This is closest to option B.

Use the Following Information to Answer the Question(s)below