UGBA 101A Lecture Notes - Lecture 2: Risk Premium, Risk Neutral

• School: Berkeley
• Department: Business Administration Undergraduate Program
• Course: UGBA 101A
• Professor: Todd Fitch

Document Summary

If mr. jaeger decides to leave the grape, there is a 50-50 chance that the vine would be hit by rainstorm. By leaving the grape on the vine (waiting for rainstorm), it will bring up a 40% chance of the development of botrytis mold and 60% chance that it would swell the berries. Therefore, the probability that the grapes will end up with botrytis if mr. jaeger decides to leave them on the vine is 20% ((cid:887)(cid:882)% (cid:886)(cid:882)%=(cid:884)(cid:882)%). The price per bottle if the botrytis formed is /bottle. So, the revenue if the grapes end up with botrytis is ,200 (/(cid:1872)(cid:1872)(cid:1857) (cid:889),(cid:882)(cid:882)(cid:882) (cid:1872)(cid:1872)(cid:1857)(cid:1871)=(cid:889),(cid:884)(cid:882)(cid:882)). ,000 for bottled and ,000 for not bottled. ((cid:1872)(cid:1872)(cid:1857)(cid:1856): /(cid:1872)(cid:1872)(cid:1857) (cid:883)(cid:884),(cid:882)(cid:882)(cid:882) (cid:1872)(cid:1872)(cid:1857)(cid:1871)= The worst scenario is if he leaves the grape on the vine, waiting for the storm, but the botrytis did not form where the rainwater would swell the.