Bob has wealth of 100 and wants to invest it. There are two assets: a safe...

 

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Bob has wealth of £100 and wants to invest it. There are two assets: a safe asset and a risky asset. If Bob invests his £100 in the safe asset, he will end up with £100. If Bob invests his £100 in the risky asset, he will end up with £100r. Bob believes that r is a uniform random variable with support [0,4]. Bob is an expected utility maximiser with von Neumann-Morgenstern utility u(x) = √√√x. Charlie is a financial expert who can provide reliable information on the risky investment. Charlie will send Bob one of the following messages: Message 1 2 3 4 Information Probability of Message 0.25 0.25 0.25 0.25 0<r<3 0<r<2 1<r <2 0.5 < r ≤ 1.5 Explain and calculate the value of Charlie's information to Bob. Bob has wealth of £100 and wants to invest it. There are two assets: a safe asset and a risky asset. If Bob invests his £100 in the safe asset, he will end up with £100. If Bob invests his £100 in the risky asset, he will end up with £100r. Bob believes that r is a uniform random variable with support [0,4]. Bob is an expected utility maximiser with von Neumann-Morgenstern utility u(x) = √√√x. Charlie is a financial expert who can provide reliable information on the risky investment. Charlie will send Bob one of the following messages: Message 1 2 3 4 Information Probability of Message 0.25 0.25 0.25 0.25 0<r<3 0<r<2 1<r <2 0.5 < r ≤ 1.5 Explain and calculate the value of Charlie's information to Bob.

Answer rating: 100% (QA)

ANSWER The value of Charlies information to Bob is 05 This is be... View the full answer