Q3. Suppose that you are a ventured capitalist and you are considering two possible investment alternatives for the coming year. The first alternative is to buy Treasury bills, which will give you a wealth of $M for sure. The second alternative has three possible outcomes. They will produce wealth $10, $5 and $1 with corresponding probabilities 0.2, 0.4 and 0.4 respectively. Your utility function for money is U(x) = 2V. (a) (b) (c) Evaluate the expected utility for these two alternatives. Which choice would you prefer if M = 6. Find the value of M so that the expected utility of these two choices are the same. How do you interpret this result? Find the second derivative of U. Is U concave or convex? What can you say about your attitude toward risk for this U? (d) (e) Q3. Suppose that you are a ventured capitalist and you are considering two possible investment alternatives for the coming year. The first alternative is to buy Treasury bills, which will give you a wealth of $M for sure. The second alternative has three possible outcomes. They will produce wealth $10, $5 and $1 with corresponding probabilities 0.2, 0.4 and 0.4 respectively. Your utility function for money is U(x) = 2V. (a) (b) (c) Evaluate the expected utility for these two alternatives. Which choice would you prefer if M = 6. Find the value of M so that the expected utility of these two choices are the same. How do you interpret this result? Find the second derivative of U. Is U concave or convex? What can you say about your attitude toward risk for this U? (d) (e)