An investors utility function is Ui(a) 3x 1 2 x 2 Act a1 has x 5 0 88, s 2 x 5 0 512, yielding Ui (a1) 5 2 384 Act a2 has x 5 0 80 What x2 would this act require to yield the same utility as a1 Explain the result using the concepts of risk and expected return ...

For a 2 to yield the same utility as a 1 we must have ...

An investors utility function is Ui(a) = 3x 1/2 x 2 Act a1 has x 5

Question:

An investor’s utility function is

Ui(a) = 3x – 1/2 σx 2

Act a1 has x 5 0.88, s 2 x 5 0.512, yielding Ui (a1) 5 2.384. Act a2 has x 5 0.80.

What σx2 would this act require to yield the same utility as a1? Explain the result using the concepts of risk and expected return.

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Financial Accounting Theory

ISBN: 978-0132984669

7th edition

Authors: William R. Scott

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Question Posted: Sep 09, 2014 11:04 AM

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An investors utility function is Ui(a) = 3x 1/2 x 2 Act a1 has x 5

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Financial Accounting Theory

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