Business, 04.12.2021 23:40 lollipop83

Consider a risk-averse individual who has utility function u(a) which is increasing with u(0) = 0. There are two risky assets: A, B. For A, every dollar invested gives a return of $0 with a probability of 1/3 and $3 with a probability of 2/3. For B, every dollar invested gives a return is $0 with a probability of 1/4 and $3 with a probability of 3/4. The individual has $120 to invest. Consider two investment choices: (1) invest an entire $120 in A and (2) invest $60 in A, $60 in B.

(a) Draw the diagram of the utility function and show your work, determine the expected utility of the individual from choice 1.

(b) Draw the diagram of the utility function and show your work, determine the expected utility of the individual from choice 2 when return from A is bad.

(c) Draw a diagram of the utility function and show your work, determine the expected utility of the individual from choice 2 when return from A is good.

(d) Draw a diagram of the utility function and show your work, determine the expected utility of the individual from choice 2.

(e) Comparing expected utility from choices 1,2 in a diagram, determine which choice is better.

Answers: 1

Show answers

Other questions on the subject: Business

Business, 22.06.2019 02:00, raylynnreece4939

Precision dyes is analyzing two machines to determine which one it should purchase. the company requires a rate of return of 15 percent and uses straight-line depreciation to a zero book value over the life of its equipment. ignore bonus depreciation. machine a has a cost of $462,000, annual aftertax cash outflows of $46,200, and a four-year life. machine b costs $898,000, has annual aftertax cash outflows of $16,500, and has a seven-year life. whichever machine is purchased will be replaced at the end of its useful life. which machine should the company purchase and how much less is that machine's eac as compared to the other machine's

Answers: 3

continue

Business, 22.06.2019 06:30, makarockslynn4764

If a seller prepaid the taxes of $4,400 and the closing is set for may 19, using the 12 month/30 day method what will the buyer owe the seller as prorated taxes?

Answers: 1

continue

Business, 22.06.2019 13:30, Geo777

You operate a small advertising agency. you employ two secretaries, a graphic designer, three sales representatives, and an office coordinator. 1. what types of things would you consider when determining how to compensate each position? describe two (2) considerations. 2. what type of compensation plan would you use for each position?

Answers: 1

continue

Business, 23.06.2019 00:30, josephfoxworth

Emerson has an associate degree. based on the bar chart below, how will his employment opportunities change from 2008 to 2018

Answers: 2

continue

You know the right answer?

Consider a risk-averse individual who has utility function u(a) which is increasing with u(0) = 0. T...