# As the owner of a family farm whose wealth is \$250,000, you must choose between sitting this season.

As the owner of a family farm whose wealth is \$250,000, you must choose between sitting this season out and investing last years earnings (\$200,000) in a safe money market fund paying 5.0 percent or planting summer corn. Planting costs \$200,000, with a six-month time to harvest. If there is rain, planting summer corn will yield \$500,000 in revenues at harvest. If there is a drought, planting will yield \$50,000 in revenues. As a third choice, you can purchase AgriCorp drought-resistant summer corn at a cost of \$250,000 that will yield \$500,000 in revenues at harvest if there is rain, and \$350,

View complete question »As the owner of a family farm whose wealth is \$250,000, you must choose between sitting this season out and investing last years earnings (\$200,000) in a safe money market fund paying 5.0 percent or planting summer corn. Planting costs \$200,000, with a six-month time to harvest. If there is rain, planting summer corn will yield \$500,000 in revenues at harvest. If there is a drought, planting will yield \$50,000 in revenues. As a third choice, you can purchase AgriCorp drought-resistant summer corn at a cost of \$250,000 that will yield \$500,000 in revenues at harvest if there is rain, and \$350,000 in revenues if there is a drought. You are risk averse, and your preference for family wealth (W) is specified by the relationship U(W) = 1W. The probability of a summer drought is 0.30, while the probability of summer rain is 0.70. Which of the three options should you choose? Explain.

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