Consider the utility function U(W) = W^0.5 where W = wealth

a) Perform the necessary calculations to demonstrate the order of preference of an investor with this utility function. Order them from most preferred to least preferred.

-Prospect 1: 50% chance of $1000, 50% chance of $2000

-Prospect 2: 25% chance of $500, 25% chance of $2000, 50% chance of $1000

-Prospect 3: $1000 for certain.

b) Explain the meaning of the expression certainty equivalent. (That is, Provide the definition)

c) Calculate the certainty equivalent of prospect 1.