Question: Hugo has a concave utility function of U W W0 5
Hugo has a concave utility function of U(W) = W0.5. His only asset is shares in an Internet start-up company. Tomorrow he will learn the stock’s value. He believes that it is worth $ 144 with probability 2/3 and $ 225 with probability 1/3. What is his expected utility? What risk premium would he pay to avoid bearing this risk?
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