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Question 1 An investor has initial wealth W = $ 2 and considers participating in a flipping - the - coin lottery: 5 0 %

Question 1
An investor has initial wealth W=$2 and considers participating in a flipping-the-coin lottery: 50%
chance of winning $1 and 50% chance of losing $1. Her preferences are described by the utility
function u(w)=W2. 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 E[L]
d) The variance of the lottery Var[L]
e) The expected value of final wealth E[W]
f) The utility evaluated at expected final wealth u(E[W])
g) The expected utility E[u(W)]
h) The certainty equivalent level of wealth WCE
i) The Markowitz risk premium .
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