Question: Smith has an investment opportunity that pays 33 with probability

Smith has an investment opportunity that pays 33 with probability 1/2 and loses 30 with probability 1/2.
a. If his current wealth is M = 111, and his utility function is U = √M, will he make this investment?
b. Will he make it if he has two equal partners? (Be sure to calculate the relevant expected utilities to at least two decimal places.)


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  • CreatedDecember 12, 2014
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