Question
An individual prefers investments according to a utility function that is either a power function or the natural logarithm. If the highest price an individual
An individual prefers investments according to a utility function that is either a power function or the natural logarithm. If the highest price an individual is willing to pay to buy an investment is also always the actuarially fair price, what can you say about that individual's risk tolerance?
The individual is risk-neutral.
The individual is risk-averse.
The individual is risk-loving.
It is impossible to draw a conclusion like this for CRRA functions, but it is possible for CARA functions.
There is not enough information to draw any of the other conclusions.
When using the binomial model, you can't make decisions about investment using only the risk-neutral measure because
all investments have the same expected rate of return in the risk-neutral measure.
all investors are risk-neutral in the risk-neutral measure.
all information about risk was removed from the model by switching from physical to risk-neutral measure.
there are undue assumptions made in the construction of the risk-neutral measure.
None of the other responses.
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