Consider the following dividend and price data for Chrysler: 1 2 3 4 5 6 7 8 9 10 11 12 13 A BCD E Year Year-end stock price Dividend per share Growth rate 6891 04.0 7891 1-3C/4C= --<%00.5205.0 8891 1-4C/5C= --<%00.005.0 9891 1-5C/6C= --<%00.0206.0 0991 1-6C/7C= --<%00.006.0 1991 1-7C/8C= --<%00.05-03.0 2991 %00.003.0 3991 %00.0133.0 4991 %63.6354.0 5991 %22.22100.1 1996 35.00 1.40 40.00% CHRYSLER CORPORATION (C) Use the Gordon model to calculate Chrysler ’ s cost of equity at end-1996 on the basis of dividends only.

Your company is starting a new r& d initiative: a development of a new drug that dramatically reduces the addiction to smoking. the expert team estimates the probability of developing the drug succesfully at 60% and a chance of losing the investment of 40%. if the project is successful, your company would earn profits (after deducting the investment) of 9,000 (thousand usd). if the development is unsuccessful, the whole investment will be lost -1,000 (thousand usd). your company's risk preference is given by the expected utility function: u(x) v1000 +x, where x is the monetary outcome of a project. calculate the expected profit of the project . calculate the expected utility of the project . find the certainty equivalent of this r& d initiative . find the risk premium of this r& d initiative e is the company risk-averse, risk-loving or risk-neutral? why do you think so?