June is relocating from Canberra to Sydney and hasengaged a removalist company to bring her household goods by truck fromher house in Canberra to her new residence in Sydney. Suppose she faces thefollowing uncertainty, either the truck makes the journery from Canberrato Sydney without incident and unloads her household goods in Sydneywith nothing lost and nothing damaged, or, the truck crashes and all herhousehold goods are damaged beyond repair. Let M denote her overall(money) wealth in the event that nothing is lost and M L denote herwealth in the event the truck carrying her household goods crashes. AssumeM > L > 0.(a) (5 points) Let (x1; x2)  (0; 0) denote Juneís state-contingent wealth,where x1  0 is her wealth in the state in which the truck does notcrash and x2  0 is her wealth in the state in which the truck doescrash. Draw a graph with the horizontal axis measuring the quantityx1 and the vertical axis measuring the quantity x2 and plot Juneísstate-contingent wealth if she does not take out any insurance

Dougie’s car is worth $10,000. Dougie is a careless fellow who leaves the top down, thekeys in the ignition, and his fanny pack in the front seat. As a result, the probability of his carbeing stolen is 0.3. If his car is stolen, he will never get it back (the fanny pack is a knockoff,assume that it has a value of zero). Dougie has $20,000 in other wealth and his utility functionfor wealth is 𝑢(𝑤) = 2𝑤^0.5. Suppose that Dougie can buy $K worth of insurance at a price of$.35K a) Write down Dougie’s von Neuman-Morgenstern utility function. (u(c1, c2, π1, π2) = π1ν(c1) + π2ν(c2))

Let (x1; x2)  (0; 0) denote Juneís state-contingent wealth,where x1  0 is her wealth in the state in which the truck does notcrash and x2  0 is her wealth in the state in which the truck doescrash. Draw a graph with the horizontal axis measuring the quantityx1 and the vertical axis measuring the quantity x2 and plot Juneísstate-contingent wealth if she does not take out any insurance.Suppose Juneís preferences over state-contingent wealth bundles (x1; x2)conform to the theory of Subjective Expected Utility

1. A property development company takes on one new project each year, investing all of its capital in that year’sproject. If the project is successful, the company makes a profit of $1million. If the project is unsuccessful,the company is ruined (loses all its money) and ceases to exist. The success or failure of each project isindependent of all previous ones. The probability that a project is unsuccessful when x million dollars isinvested (for x = 1, 2, 3, . . .) is 1/(x + 1) 2 . Let X n million dollars be the company’s total capital after nprojects.(a) Write down the transition probabilities for the Markov chain (X n ).(b) Show that when X 0 = i, the probability h i of eventual ruin is 1i+1

An entity purchased property for $6 million on 1 July 20X3. The land element of thepurchase was $1 million. The expected life of the building was 50 years and its residual valuenil. On 30 June 20X5 the property was revalued to $7 million, of which the land element was$1.24 million and the buildings $5.76 million. On 30 June 20X7, the property was sold for$6.8 million.What is the gain on disposal of the property that would be reported in the statement ofprofit or loss for the year to 30 June 20X7?A Gain $40,000B Loss $200,000C Gain $1,000,000D Gain $1,240,000

An entity purchased property for $6 million on 1 July 20X3. The land element of the purchasewas $1 million. The expected life of the building was 50 years and its residual value nil. On30 June 20X5 the property was revalued to $7 million, of which the land element was$1.24 million and the buildings $5.76 million. On 30 June 20X7, the property was sold for$6.8 million.What is the gain on disposal of the property that would be reported in the statement ofprofit or loss for the year to 30 June 20X7?A Gain $40,000B Loss $200,000C Gain $1,000,000D Gain $1,240,000