Question
Suppose an investment has three possible outcomes.There is a 30% chance that it brings a profit of 22,500.There is a 30% chance that it brings
- Suppose an investment has three possible outcomes.There is a 30% chance that it brings a profit of 22,500.There is a 30% chance that it brings a profit of 10,000.There is a 40% chance that is brings a profit of 0.What is the expected profit (or expected value of the profit) for this investment?
2. Continue to suppose an investment has three possible outcomes.There is a 30% chance that it brings a profit of 22,500.There is a 30% chance that it brings a profit of 10,000.There is a 40% chance that is brings a profit of 0.Suppose a decision makers utility function can be described by U(w)=w^0.5.What is the expected utility of this investment?
3. Continue to suppose an investment has three possible outcomes.There is a 30% chance that it brings a profit of 22,500.There is a 30% chance that it brings a profit of 10,000.There is a 40% chance that is brings a profit of 0.Suppose a decision makers utility function can be described by U(w)=w^0.5.What is this investment's certainty equivalence for this decision maker?
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Entrepreneurship
Authors: Andrew Zacharakis, William D Bygrave
5th Edition
1119563097, 9781119563099
