Understanding Expected Earnings and Willingness to Accept in Financial Decisions

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Explore the concept of expected earnings and willingness to accept in financial transactions through a series of images depicting the valuation process. Discover how financiers assess the worth of stakeholders and the implications of lowering valuations on average earnings, leading to potential market unraveling.


Uploaded on Sep 26, 2024 | 0 Views


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  1. Expected Earnings Median college-goer expects to earn $20K at age 26 Average Value

  2. Expected Earnings Median college-goer expects to earn $20K at age 26 Average Value But the average earnings of those with below-median expectations is $12K

  3. Expected Earnings Median college-goer expects to earn $20K at age 26 Average Value So a stake in their earnings is worth only $12K to financiers

  4. Expected Earnings Willingness to Accept Median individual s WTA is $16K Average Value

  5. Expected Earnings Willingness to Accept Average Value Financier loses 25% ($4K for every $16K)

  6. Expected Earnings Willingness to Accept They could lower their valuation to $12K Average Value

  7. Expected Earnings Willingness to Accept They could lower their valuation to $12K Average Value But now average earnings of those accepting the contract is just $10K

  8. Expected Earnings Willingness to Accept They could lower their valuation to $12K Average Value The financier again loses money: $2K for every $12K of financing they offer

  9. Expected Earnings Willingness to Accept Average Value

  10. Expected Earnings Willingness to Accept The process continues and the market fully unravels Average Value

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