Respond to each classmate 100 words a piece Classmate 1 The Wheel of Cash game is similar to an investment with an uncertain outcome because many risks can occur, resulting in a significant profit or

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Respond to each classmate 100 words a piece

Classmate 1

The Wheel of Cash game is similar to an investment with an uncertain outcome because many risks can occur, resulting in a significant profit or loss. As we evaluate the game, we need to determine whether we would instead assume the risk of project A or B. If the investor chooses project A, there could be more profit; on the contrary, there would be more to lose. Typically, a general rule in investing is the more extensive the risk, the larger the profit. There are some exceptions to the rule. However, this strategy could be applied in any scenario. In this case, the investor is struggling to make the best decision on which project to fund because neither of the investments are a sure thing and could result in a lose.

The investor may want to find other types of safer investments to choose to fund these projects in the real world. It is a good idea to shop around and get multiple quotes, not just one or two. It is never a good idea to accept the first bids for large projects with hefty start-up fees. As we learned in Chapter 17, companies use several strategies to mark up their prices, including various types of price discrimination to help increase the company’s profitability. Also, the company may want to look at ways to reduce fixed and labor costs. Fixed and labor costs are significant contributors to a company’s expenses which could be money used to fund other investments.

Classmate 2

In many instances,  an investor will lack all of the information that he or she desires to ensure that an outcome is 100 percent certain.  Because of this, an investor is unable to simply compute the costs and benefits of an investment decision to be made (Froeb et al., 2018).  In Chapter 17, we are provided with the example of the Wheel of Cash game.  Instead investors may use “random variables” to account for the costs they are unaware of.  All probabilities of these random variables must be equal to a sum of one.  An example of using random variables would be the Wheel of Cash example provided in the chapter.  Within this example, individuals who decide to play the wheel of cash game pay $50 to play.  They can either win $100, $75, or $5.  If the wheel is fair and not set to stop at a certain amount, the player has a 1/3 or 33.333% chance of making $100, $75, or $5.

The textbook teaches us that if each outcome has an equal chance of probability of occuring, then the “expected value” of taking this risk, or playing this game, is $60, which would be a $10 profit (remember we paid $50 to spin the wheel of cash).  Normally, however, this is not the case, with games such as the “wheel of cash game”, the wheel has twice the probability of stopping at $5.00. This makes the game more high risk.  Investors in many instances are approached with proposals that may be labeled as “high risk”.  While in many cases, a high risk has a chance of presenting a high return, many investors are “risk averse”.  In this instant it may deemed wise to choose a safe investment, this investment may present lower returns, but at the same time it may be an investment that may yield returns.

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