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You are offered the chance to invest in a risky asset. The asset will return $198 in the good state but only $48 in the
You are offered the chance to invest in a risky asset. The asset will return $198 in the good state but only $48 in the bad state. The good occurs with a probability of 87% and the bad state occurs with a probability of 1-87%. You have log utility (your utility is given by the function U = ln(W), where W is the payout you receive from the investment). What is the Certainty Equivalent of this investment opportunity?
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