1.

You are considering investing $10,000 in a risky portfolio. The value of the risky portfolio in a year can be one of the following three scenarios.

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State probability Portfolio values

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Good 30% $12,000

Average 60% $10,500

Recess 10% $9,000

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Your power utility function has a gamma value of 0.8.

Find your certainty equivalent of the investment. Then if you have an opportunity to invest in the one-year risk-free rate at 5% per year, explain what your choice will be? Investing in the risky portfolio or the risk-free asset.

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please show work!

PLEASE SHOW WORK