Apply the maximin criterion assuming that the worst outcome in Business

An angel investor is considering investing in one of two start-up businesses and is evaluating t Show more . An angel investor is considering investing in one of two start-up businesses and is evaluating the expected returns along with the risk of each option in order to choose the better alternative. Business 1 is an innovative protein energy drink which has ENPV of $100000 with a standard deviation of $40000. Business 2 is a unique chicken wings dipping sauce with an ENPV of $60000 and a standard deviation of $25000. a) Apply the coefficient-of-variation decision criterion to these alternatives to find out which is preferred by the angel investor assuming that he/she is risk-averse. b) Apply the maximin criterion assuming that the worst outcome in Business 1 is to lose $5000 whereas the worst outcome in Business 2 is to make only $5000 in profit. c) If you were the angel investor what is your certainty equivalent for these two projects? Are you risk-averse risk-neutral or risk-lover? Show less


 

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