Question: John has a utility function given by the expression U(x) = E(r) - A(s). Where E(r) is the expected return on an asset and s

John has a utility function given by the expression U(x) = E(r) - A(s). Where E(r) is the expected return on an asset and s is the standard deviation of returns on that asset. John has the opportunity to purchase the XJK security that returns 14% with 47% probability and returns 4.7% the remainder of the time. The security has a price of $36 and A=5

a) What is the risk-neutral valuation of the XJK security? Recall the risk-neutral value is simply the expected value.

b) Using the utility function above, find John's risk-averse valuation of XJK security. Hint: Find John's certainty equivalent (CEQ) for this security's payoff.

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