Jen, in Exercise 2.2, may buy Stock A or Stock B.

Stock A has a 50% chance of being worth $100 and 50% of being worth $200. Stock B’s value is $50 with a change of a half or $250 with a probability of 50%. Show that the two stocks have an equal expected value but different variances. Show that Jen prefers Stock A to Stock B because her expected utility is higher with Stock A. M