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Question 1 An investor has initial wealth W = $ 2 and considers participating in a flipping - the - coin lottery: 5 0 %
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An investor has initial wealth $ and considers participating in a flippingthecoin lottery:
chance of winning $ and chance of losing $ Her preferences are described by the utility
function Using this information, compute the following:
a The degree of absolute risk aversion ARA
b The degree of relative risk aversion RRA
c The expected value of the lottery
d The variance of the lottery Var
e The expected value of final wealth
f The utility evaluated at expected final wealth
g The expected utility
h The certainty equivalent level of wealth
i The Markowitz risk premium
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