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W (b). Consider the following three investments. What is the preferred investment if U(W)= 2W1/2? Investment A Investment B Investment C Outcome ($) Probability Outcome
W (b). Consider the following three investments. What is the preferred investment if U(W)= 2W1/2? Investment A Investment B Investment C Outcome ($) Probability Outcome ($) Probability Outcome ($) Probability 50 0.2 0.05 100 1/3 100 0.6 100 0.9 100 1/3 1000 0.2 10000 0.05 100 1/3 (c). Rank the above investments from the lowest risk premium to the highest. Verify your answer numerically and explain briefly the underlying economic intuitions
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