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You are an executive working for Blood Diamonds Limited Your company has an option to explore a field for diamonds If you find the diamonds the profit for your company will be $50000000 Each

 You are an executive working for Blood Diamonds Limited. Your company has an option to explore a field for diamonds. If you find the diamonds, the profit for your company will be $50,000,000. Each test site that you drill will have a 5% chance of finding the diamonds, and cost $300,000.

How many test sites should you drill (you must order them all at once, because your option time will run out shortly after the time it takes to drill a test site)

Answer in whole numbers, as you can't drill a fractional site.

2. Drilling the best number of sites you just found, what is the expected value of profit?

3. Drilling the optimal number of sites, what is the probability your company doesn't find the diamonds?

4. How much money will your company lose if the diamonds are not found?

 

May 21 2020 View more View Less

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