An investor has an opportunity to invest $10,000 in a venture that will pay $20,000 with...

 

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An investor has an opportunity to invest $10,000 in a venture that will pay $20,000 with proba- bility 0.6 and nothing with probability 0.4. The utility function of the investor is u(w) = 200w-w² for total wealth values 0≤w≤ 100 in thousands of dollars. (a) (10 pts) Plot this utility function. Describe the investor's risk attitude. (b) (15 pts) If the investor has total assets of $10,000, should he invest in the venture or not? What if the investor has total assets of $90,000? How does the answer relate to the investor's risk attitude? An investor has an opportunity to invest $10,000 in a venture that will pay $20,000 with proba- bility 0.6 and nothing with probability 0.4. The utility function of the investor is u(w) = 200w-w² for total wealth values 0≤w≤ 100 in thousands of dollars. (a) (10 pts) Plot this utility function. Describe the investor's risk attitude. (b) (15 pts) If the investor has total assets of $10,000, should he invest in the venture or not? What if the investor has total assets of $90,000? How does the answer relate to the investor's risk attitude?