For an investor with the utility function U(W) = ln (W), the following options are available:

- A guaranteed wealth level of $100,000.

- An investment with potential wealth outcomes of $50,000 or $150,000. Both outcomes have equal probabilities.

a) Determine the Certainty Equivalent Wealth (CEW) amount. (5 marks)

b) Does this utility function indicate risk aversion, and why? (2 marks)

Note: Round your answers to two decimal places and please show your working.

Answer rating: 100% (QA)

a To determine the Certainty Equivalent Wealth CEW amount we need to find the guaranteed wealth leve... View the full answer