CAS Exam 9 Spring 2019, Question 18
Study guide: Exam 9
Three standalone entities are considering forming a single company to reduce required funds.
| Entity | Required Funds ($millions) |
|---|---|
| 1 | 1.9 |
| 2 | 3.2 |
| 3 | 5.1 |
| Company | Required Funds ($millions) |
|---|---|
| Entities 1&2 | 4.5 |
| Entities 1&3 | 6.4 |
| Entities 2&3 | 7.5 |
| Entities 1&2&3 | 8.7 |
Part a (1.25 points)
Based on the Shapley method, determine the amount each entity would contribute to the required funds to form a single company.
Part b (0.5 points)
Briefly describe two conditions of rationality relating to game theory.
Part c (0.5 points)
Determine the range of funds that could be contributed by Entity 2 and still satisfy the conditions of rationality.
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