An investor has $10,000 in assets and can choose between two different investments. If she invests in

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An investor has $10,000 in assets and can choose between two different investments. If she invests in the first investment opportunity, there is an 80% chance that she will increase her assets by $590,000 and a 20% chance that she will increase her assets by

$190,000. If she invests in the second investment opportunity, there is a 50% chance that she will increase her assets by $1.19 million and a 50% chance that she will increase her assets by $1000. This investor has an exponential utility function for final assets with a risk tolerance parameter equal to $600,000. Which investment opportunity will she prefer?

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Practical Management Science, Revised

ISBN: 9781118373439

3rd Edition

Authors: Wayne L Winston, S. Christian Albright

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