Suppose That the Cost of Installing an Overhead Pedestrian Walkway

question 114

Multiple Choice

Suppose that the cost of installing an overhead pedestrian walkway in a college town is $80,000.The walkway is expected to reduce the risk of fatality by 0.8 percent,and the cost of a human life is estimated at $10 million.The town should

• A) install the walkway because the estimated benefit is twice the cost.
• B) install the walkway because the estimated benefit equals the cost.
• C) not install the walkway,since the cost is twice the estimated benefit.
• D) install the walkway,since the cost of even a single life is too great not to take action.

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Definitions:

Risk Level

The degree of uncertainty and/or potential financial loss inherent in an investment decision.

Treasury Bills

Short-term government securities issued at a discount from face value and mature in a year or less, representing a safe and liquid investment option.

Risky Stock

A stock that carries a high level of volatility and uncertain returns, often associated with companies in emerging or highly competitive sectors.