Assume an investment opportunity that pays $100,000 with probability 0.75 and $125,000 with probability 0.25. Given a
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Assume an investment opportunity that pays $100,000 with probability 0.75 and $125,000 with probability 0.25. Given a risk aversion coefficient of 0.35 and a power utility function, what is the certainty equivalent and risk premium of the gamble? How do these values change the value of the gamble if the probability of $100,000 declines to 0.40?
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