Economics of Risk and Uncertainty Applied ProblemsPlease complete the following two applied problems in a Word or Excel document. Show all your calculations and explain your results. Submit your assignment in the drop box by using the Assignment Submission button.Week 1 Assignment Study Guide1. A generous university benefactor has agreed to donate a large amount of money for student scholarships. The money can be provided in one lump-sum of $10mln or in parts where $5.5mln can be provided in year 1 and another $5.5mln can be provided in year 2. Assuming the opportunity interest rate is 6% what is the present value of the second alternative? Which of the two alternatives should be chosen and why? How would your decision change if the opportunity interest rate was 12%? Please show all your calculations.2. 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.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?
