Edwina, a commoditiesbroker, has acquired an option to buy 1,000 oz of gold at $50/oz.If she takes her option and Congress relaxes the import quotas, shecan sell the gold for $80/oz. If she takes the option and Congressdoes not relax the import quotas, however, the company will lose$10/oz. Edwina believes there is a 63% chance that the governmentwill relax the quota. She also has the option of waiting until Congress decides whether to relax the import quota. If she adoptsthis strategy, however, there is a 74% chance that some otherbroker will have already taken the option.
If Edwina's utility function for a change x in her asset positionis given by u(x) = (10000+x)^(1/2)