Uncertainty and Expected Utility, assignment help
Suppose your current wealth is $40,000 and aninvestment broker calls to offer you an investment opportunity that will pay you a 50% returnon a $10,000 investment (i.e., $5,000 profit). However, this investment comes with a risk.There is only a 60% that it will pay you $5,000 profit. There is a 30% you will lose $5,000and another 10% chance that you will lose it all. Your other option is to buy a risk-freegovernment bond that will guarantee 4% interest for one year.
(a) (2 pts) What is the expected return on the investment?(b) (2 pts) Which investment will you choose if your utility function is U=M2(c) (2 pts) Which investment will you choose if your utility function is U= M1/2
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