Question
Assume Investor Ian currently has $40,000 of which he has to invest $20,000 in a company with a 50% probability of doubling the $20,000 and
Assume Investor Ian currently has $40,000 of which he has to invest $20,000 in a company with a 50% probability of doubling the $20,000 and a 50% probability of losing the $20,000. What is Investor Ians total expected income after making the investment (including the $20,000 he does not invest)? (1 mark) (b) On your diagram, show Investor Ians expected utility from his expected income identified in (a) above. (2 marks) Assume Investor Ian is offered the opportunity to invest in two companies rather than one. (c) Of his $40,000 assume Investor Ian puts $10,000 into company A and $10,000 in company B. Both companies have a 50% chance of doubling his money and a 50% chance of losing his money. What is Investor Ians expected income after making the investment (including the $20,000 he does not invest)? (1 mark) (d) On your diagram in (b) above, show Investor Ians expected utility from his expected income identified in (c) above.
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