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Part 1
A drug development company develops a new antiviral medication. It applies for a patent and for Federal Drug Administration (FDA) approval to sell it. The firm estimates that the patent application has a 60% chance of success and that FDA approval has a probability of 75%. If both applications are successful, the drug can be sold to a major drug producer for $88 million. If FDA approval is obtained but the patent application is unsuccessful, the drug can be sold for $66 million. If the drug is not approved by the FDA, it is worth nothing. What are the expected value and variance of this drug? (Work in units of $1 million.)
Part 2
The expected value (EV) of the medication is EV = 5.40 million. (Enter your response rounded to two decimal places.)
Part 3
The variance of the medication’s value is Variance = 25.02 million. (Enter your response rounded to two decimal places.)
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