Mark is an investor with $100. He is an expected utility maximizer with a von Neaumann-Morgenstern utility function u(w)=w^0.5. Mark decides to partake in an risky investment, which has a probability of 0.5. He can lose $75 or he can gain $44. Calculate his expected utility and the certainty equivalent of this investment. Determine the risk premium. Plot his utility function a graph.

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Expected Utility EU 05 x 7505 05 x 4405 EU ... View the full answer