Question: A risk-averse consumer has a utility function log(W), where W is his wealth. He has an investment opportunity which multiplies his wealth by a factor

A risk-averse consumer has a utility function log(W), where W is his wealth. He has an investment opportunity which multiplies his wealth by a factor of 1 + r, where r =0.2, -0.1 with probabilities (0.5,0.5) respectively.

part a) Suppose that W=1. Would he accept/not accept the investment?

part b) Suppose that r= x, -0.1 with probabilities (0.5,0.5) respectively, but now x is and unknown. Find the minimum level of x such that he would accept the investment.

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