Roanne maximises her expected utility of final wealth, with utility measured as the square root of...
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Roanne maximises her expected utility of final wealth, with utility measured as the square root of final wealth in dollars. Roanne has $1000 in initial wealth (cash). Assume the risk free rate is 0% and the market risk premium is 5%. Roanne now uses $300 of her initial wealth (leaving her with $700 cash) to enter into an investment with the following payoffs (see table below). After entering into the investment, Roanne has an expected utility of final wealth of 35. State Bad Good Probability 0.5 0.5 Investment Payoff $200 X What is the dollar value of the payoff X that is consistent with Roanne's expected utility of final wealth of 35? Roanne maximises her expected utility of final wealth, with utility measured as the square root of final wealth in dollars. Roanne has $1000 in initial wealth (cash). Assume the risk free rate is 0% and the market risk premium is 5%. Roanne now uses $300 of her initial wealth (leaving her with $700 cash) to enter into an investment with the following payoffs (see table below). After entering into the investment, Roanne has an expected utility of final wealth of 35. State Bad Good Probability 0.5 0.5 Investment Payoff $200 X What is the dollar value of the payoff X that is consistent with Roanne's expected utility of final wealth of 35?
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