Question
Imagine your financial advisor offers you a new investment opportunity in a derivative contract. The contract has two potential outcomes: it will either pay you
Imagine your financial advisor offers you a new investment opportunity in a derivative contract. The contract has two potential outcomes: it will either pay you $238 in the good state or pay you $55 in the bad state. The good outcome occurs with a probability of 87% and the bad outcome occurs with a probability of 1-87%. If you have log utility (i.e., your utility is given by the function U = ln(W)), then what is the most you would pay for this investment opportunity? Enter your answer with one decimal point and without the dollar sign (i.e, if your answer is $83.7 enter 83.7)
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