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(1 pt) An investor is asked to consider a possible risky investment as follows The payoff X is the amount 0 with probability , and
(1 pt) An investor is asked to consider a possible risky investment as follows The payoff X is the amount 0 with probability , and the amount 4 with probability The investor is then asked: what risk-free (certain) payoff C is equivalent to the risky payoff X? (S)he answers: a risk-free payoff of C 2 is equivalent to X Find the values of the parameters C, a, in the form such that the three conditions U(0) = 0, U(2) IU(X)] and U(4) = 4 are satisfied. Would you characterize this investor as risk-averse of risk-loving? This investor is risk- loving
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