A risk averse investor with utility function: u(w) = (w)1/2 where w represents wealth, He has $200 (wo) available to invest in the financial market. He has two alternatives. One is a risk-free asset with interest rate ofr 2%; and the other alternative is to invest in a risky asset whose return is represented by a discrete probability distribution: = (1%, 5%; 1/2, 1/2). %3D Consider the following two portfolios (P1 an P2): P1 consists in investing $50 in che risky asset, and P2 in investing $150 in the risky asset. Calculate the expected utility of every portfolio: u(P1) = (use two decimals) (P2) = (use two decimals). %3D

A risk averse investor with utility function: u(w) = (w)1/2 where w represents wealth, He has $200 (wo) available to invest in the financial market. He has two alternatives. One is a risk-free asset with interest rate ofr 2%; and the other alternative is to invest in a risky asset whose return is represented by a discrete probability distribution: = (1%, 5%; 1/2, 1/2). %3D Consider the following two portfolios (P1 an P2): P1 consists in investing $50 in che risky asset, and P2 in investing $150 in the risky asset. Calculate the expected utility of every portfolio: u(P1) = (use two decimals) (P2) = (use two decimals). %3D

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.10P

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