Consider an investment whose future wealth V will be one of (V.V.V3.V4) = ($1800, $2200, $1200,...
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Consider an investment whose future wealth V will be one of (V₁.V₂.V3.V4) = ($1800, $2200, $1200, $2000) with probabilities (P₁, P₂, P3, P4) =(2222), respectively. '12' 12 Let the utility function be u(x) = ln(x). (a) Find the expected utility of the future wealth. E[u(V)] = (b) Find the utility of the expected future wealth. u(E[V]) = (c) The result in part (b) is greater than the result from part (a) since to 4 decimal places to 4 decimal places (d) Find the certainty equivalent C such that u(C) = E[u(V)]. That is, the amount a rational investor would be willing to accept risk-free instead of entering into the investment. C=$ Consider an investment whose future wealth V will be one of (V₁.V₂.V3.V4) = ($1800, $2200, $1200, $2000) with probabilities (P₁, P₂, P3, P4) =(2222), respectively. '12' 12 Let the utility function be u(x) = ln(x). (a) Find the expected utility of the future wealth. E[u(V)] = (b) Find the utility of the expected future wealth. u(E[V]) = (c) The result in part (b) is greater than the result from part (a) since to 4 decimal places to 4 decimal places (d) Find the certainty equivalent C such that u(C) = E[u(V)]. That is, the amount a rational investor would be willing to accept risk-free instead of entering into the investment. C=$
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