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I need those answers...Thanks! 24 39 This is the first part of a multi-question problem. Rafa's wealth is $10,000 when a friend comes to him
I need those answers...Thanks!
24 39 This is the first part of a multi-question problem. Rafa's wealth is $10,000 when a friend comes to him with two investment opportunities. Investment A would cost Rafa $ 1000. With 75 percent probability his $1,000 investment would grow to $2,000. With 25 percent probability, it would shrink to 0. Investment B would cost Rafa $2,000. With 50 percent probability the investment would grow to $6,000 and with 50 percent probability it would shrink to 0. a) What is the expected financial gain from Investment B? (Note, I am not asking for Rafa's expected wealth. I am asking for the expected financial gain from the investment). 25 3$ This is the second part of a multi-question problem. Refer to the information in the previous part. b) Suppose Rafa can invest in at most one option. And he may of course choose not to invest at all. What will Rafa choose? O Investment A Investment B Don't invest. O Insufficient information to know what Rafa will do. 26 35 This is the third part of a multi-question problem. Refer to the information from the previous parts (but do not use information from the next past to answer this question). c) Here's some additional information: Rafa has diminishing marginal utility of wealth. With this additional information, what will Rafa choose? Investment A Investment B Don't invest. Insufficient information 27 39 This is the fourth part of a multi-question problem. Refer to the information from the previous parts. d) Here's some additional information: Rafa's utility over various income levels is given in the following table. Wealth ($) Utility 8,000 4 9,000 8 10,000 11 11,000 12 12,000 12.5 13.000 12.75 14,000 13 13.125 15,000 16,000 13.2 What is Rafa's expected utility from Investment B? 28Step by Step Solution
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