Question
For an investor with the utility function U(W) = ln (W), the following options are available: - A guaranteed wealth level of $100,000. - An
For an investor with the utility function U(W) = ln (W), the following options are available:
- A guaranteed wealth level of $100,000.
- An investment with potential wealth outcomes of $50,000 or $150,000. Both outcomes have equal probabilities.
a) Determine the Certainty Equivalent Wealth (CEW) amount. (5 marks)
b) Does this utility function indicate risk aversion, and why? (2 marks)
Note: Round your answers to two decimal places and please show your working.
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Managerial Economics And Strategy
Authors: Jeffrey M. Perloff, James A. Brander
3rd Edition
0134899709, 978-0134899701
