INVESTMENT PROB OUTCOME PROBE OUTCOME PROB OUTCOME Blue Chips 0.204 1000- 0.304 1500- 0.50- 2000 T. High Tech 0.30

INVESTMENT Blue Chipe High Teche PROBe 0.3 OUTCOME PROBe 0.30e OUTCOME PROBe OUTCOME 2000+0 (3 points) the two investments above. What do we mean by Expected Value? What is the expected value E(X) for each investment?e (2 points) do we mean when we say an agent is Risk Averse? Use the text definition to explain what risk aversion is.e (3 points) the person doing the investing is Risk Averse. How would they rank the two investments?' Explain. Hint: think about the expected payoffs and variances of the investments.e (4 points) (d) Suppose the person had expected utility of U(x) = Alx. Show that, if the investment costs $1600, they would willingly purchase the Blue Chip investment but not the High Tech Show your work and explain the idea.e (2 points) (eLSgpp9i9 instead the person had expected utility of U(x) = x2. Explain why this utility represents Risk Loving behaviour.e (3 points) (f) Suppose the person had expected utility of U(x) = x2. Show that, "f the investment costs $1700, they would willingly purchase the High Tech investment but not the Blue Chip investment. Show your work and explain the idea .e (3 points) the person 'had expected utility of U(x) = x2. What is the risk premium associated with the investment. Interpret what the risk premium means in this example. e