Question: Calculate Jane's certainty equivalent if Jane is offered a choice of taking $45 or winning $100 if the next coin flip comes up heads.

Calculate Jane's certainty equivalent if Jane is offered a choice of taking

Calculate Jane's certainty equivalent if Jane is offered a choice of taking $45 or winning $100 if the next coin flip comes up heads. For this calculation, you have to choose between two functions describing the utility of investments. These functions are: Function A: u = 4 * x Function B: u = (4 times 1.1 root of x) (1 divided by x) Question 1 Select the correct utility function from Functions A and B and explain why you decided on Function A or B. Question 2 Based on the utility function you have chosen, calculate the certainty equivalent in this game for Jane

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Step 11 When Jane chooses to take 45 A u 445 4 x 3184 12734 B u 145 0022 When Jan... View full answer

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