Question Four

Suppose Investor A has a power utility function with $=1.$ whilst Investor B has a power utility function with $=0\mathrm{.}5.$

Which investor is more risk$-$averse $($assuming that $w>0)?$

Suppose that Investor B has an initial wealth of $100$ and is offered the opportunity to buy Investment X for $100,$ which offers an equal chance of a payout of $110$ or $92.$

Will she choose to buy Investment X$?$

Question Five Consider the following utility function:

$U(w)=-e^{-aw},a>0$

Derive expressions for the absolute risk aversion and relative risk aversion measures. What does the latter indicate about the investor's desire to hold risky assets?