Question
(a)Consider a risky project D with an outcome $4 with a probability of 60% and $16 with a probability of 40%. Compute EV, the expected
(a)Consider a risky project D with an outcome $4 with a probability of 60% and $16 with a probability of 40%. Compute EV, the expected value of D.
(b)Mr. Ralph wishes to invest in D. Mr. Ralph has a utility function given by U(x) = 0.25x2+10 . Compute CE for Mr. Ralph. Is Mr. Ralph risk-averse, risk-neutral, or risk-loving, given his CE? Explain.
(c) Mrs. Ralph also wishes to invest in D. Mrs. Ralph has a utility function given by U(x)=10x . Compute CE for Mrs. Ralph. Is Mrs. Ralph risk-averse, risk-neutral, or risk-loving, given her CE? Explain.
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Finance Operations
Authors: Charles Finley
1st Edition
1491292423, 978-1491292426
