Two companies, Rothko, LLC, and Calder & Co., are racing each other to be the first to apply new deep-water drilling technologies to an oil deposit. If Rothko, LLC gets to the oil first, its stock will increase by 63%, and Calder & Co./'s stock price will not change at all. If Calder & Co. get to the oil deposit first, its stock price will increase by 37%, and Rothko/'s stock price won/'t change at all. These are the only two companies trying to tap the deposit.
The chance that Calder & Co. arrives first is 63%.
NOTE: All answers should be to two decimal places.
1. What is the expected payoff of investing $1000 in Rothko, LLC?2. What is the expected payoff of investing the same amount in Calder & Co.?3. What is the expected payoff of investing $500 in Calder & Co. and $500 in Rothko, LLC?
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