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Mathematics, 14.05.2021 14:00 hannahbanana2000

Suppose that two investors A and B have exhibited the indifference probabilities as shown in table below. Indifference probability Investor A Investor B Net return (RM) -2000 0 0 - 1000 0.70 0.10 0 0.80 0.20 1000 0.85 0.30 2000 0.90 0.50 3000 0.95 0.60 4000 1.00 1.00 a) Determine the utility value (for each monetary value) for each investor and fill it in table above. b) Graph the utility functions for both investors and categorize each investor as either a risk- averse person or a risk seeker. c) Suppose that investor A has the chance to invest in one of two ventures. Venture I can produce a net return of RM3000 with probability 0.40 or a net loss of RM1000 with probability 0.60. Venture II can produce a net return of RM2000 with probability 0.60 and no return with probability 0.40. Based on utility function in (b), use the expected utility criterion to determine the venture investor A should select. What is the expected monetary value associated with the selected venture?

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