Only question e f g

An individual with wealth is is deciding how much to invest in the stock market. Denote the investment by 2. With probability 71' the price of this stock will go up by r x100%, and with probability (1 - 7r) the price of this stock will go down by r x 100%. The current price of the stock is $1. (a) What is her total wealth Her Bernoulli u 1' total wealth when she makes a prot on her investmen What is n she makes a loss on her investment? u(:r}=:r", 06 (0.1) (b) What is her expect this case is denoted by a difle So we can think of the expected (0) What is her expected utilit and r? I; level :5? [Hint: Each lottery in nothing eISe varies across lotteries. ility from the invest tion of 2.] ng level of investment in terms of rr, v: (d) If 7r = 0. ow much does she invest? What if 7r = 1? (e) Suppose t e parameter values are a = 0.5, 31' = g and r = 1. How much does she invest? ( f) What is the certainty equivalent and risk premium for the lottery corresponding to 2:? What is the risk premium? (g) What happens to the risk premium as a + 1? Provide an intuition for this result