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An online retail company is considering a revision in its product portfolio. If not revised, the profit from the current portfolio of the company
An online retail company is considering a revision in its product portfolio. If not revised, the profit from the current portfolio of the company will be $14 billion with probability 0.6 or $175 billion with probability 0.4. The revision of the portfolio costs $10 billion, the revised portfolio will generate a revenue of $104 billion with probability 0.85 and $60 billion with probability 0.15. The company's present wealth is $50 billion and its utility function for money is given as u(x) = 2x" - 16, where x 0 is the total wealth in billion dollars and 0 < n < 1 is a parameter of the utility function. (a) (10 PTS) Describe this company's risk attitude. How does it change as a function of wealth? How does it change as a function of the parameter 0
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