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1 (10 points) Consider the two investments listed below with possible outcomes and probabilities: INVESTMENT INVESTMENT GOOD AVERAGE BAD {in 51000) AMOUNT SCENARIO SCENARIO SCENARIO
1 (10 points) Consider the two investments listed below with possible outcomes and probabilities: INVESTMENT INVESTMENT GOOD AVERAGE BAD {in 51000) AMOUNT SCENARIO SCENARIO SCENARIO OUTCOME PROB OUTCOME PROB OUTCOME PROS 35 10 a] What are the expected payoffs {Eli} and standard deviations for each investment? bl Suppose I have utility function UP] = x}. What is the expected utility from each investment? c] Which investment will I choose, if any? Show and explain your work and provide the intuition. d] What is the value of the risk premium for the SAFE investment? Show and explain your work and provide the intuition. e) What is the value of the risk premium for the RISKY investment? Show and explain your work and provide the intuition
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