An investor has a base (10 log) utility function: (U(x)=log _{10}(x)). Investment 1 has payoff ((1,100)) with

Question:

An investor has a base $10 \log$ utility function: $U(x)=\log _{10}(x)$. Investment 1 has payoff $(1,100)$ with probabilities $(0.8,0.2)$. Investment 2 has payoff $(10,1000)$ with probabilities $(0.99,0.01)$.

(a) Which investment is mean-variance dominant?

(b) Which investment has higher expected utility?

Fantastic news! We've Found the answer you've been seeking!

Step by Step Answer:

Related Book For book-img-for-question

Mathematical Techniques In Finance An Introduction Wiley Finance

ISBN: 9781119838401

1st Edition

Authors: Amir Sadr

See More Books

Question Posted: Feb 27, 2024 03:11 AM

See More Questions

Let A, B be sets. Define: (a) the Cartesian product (A B) (b) the set of relations R between A and B (c) the identity relation A on the set A [3 marks] Suppose S, T are relations between A and B, and...
can someone solve this Modern workstations typically have memory systems that incorporate two or three levels of caching. Explain why they are designed like this. [4 marks] In order to investigate...
Portray in words what transforms you would have to make to your execution to some degree (a) to accomplish this and remark on the benefits and detriments of this thought.You are approached to compose...
Steam leaves a nozzle with a pressure of 500 kPa, a temperature of 350C, and a velocity of 250 m/s. What is the isentropic stagnation pressure and temperature?
The annual sales revenue required by Oradell Company in order to achieve after-tax net income of $224,000 for the year is a. $3,600,000 b. $3,312,000 c. $1,656,000 d. $3,110,400
Can the earned income credit 1x? characterized as a form of negative income 1ax? Why or why not?
Laminar flow normally persists on a smooth flat plate until a critical Reynolds number value is reached. However, the flow can be tripped to a turbulent state by adding roughness to the leading edge...
Moxley Corporation had January 1 and December 31 balances as follows. For 2010, cost of goods sold was $500,000. Compute Moxley's 2010 cash payments tosuppliers. Inventory Accounts payable 1/1/10...
A "Jan-van-gent" is the biggest sea-bird on the North-sea. The average mass of this bird is 2.8 kg. When he dives to catch fish his velocity exceeds that of 100km/h. a) If we know that he dives from...
Assume you have $\$ 100,000$ to invest for one year, and decide to allocate $60 \%$ to an all equity fund trading at $\$ 400$ per share and $40 \%$ to a bond fund trading at $\$ 100$ per...
Using the formulas for ARA and RRA (a) Show that exponential utility: $U(x)=1-e^{-c x}$ for some $c>0$, has constant ARA (CARA). (b) For power utility: \(U(x)=\left(x^{1-\alpha}-1ight)...
The force F acts on the bracket within the octant shown. If the magnitudes of the x and z components of F are F x = 300 N and F z? = 600 N, respectively and ? = 60 o , determine the magnitude of F...
Luke, Emily and Ekua run a fast food store in Varsity Lakes through Varsity Grub Pty Ltd, which sells fish and chips and other junk food primarily to local university students. They each own 100...
The state that Mr. Smith lives in has a 6% sales tax. If he purchases a boat that costs $16,000, he must pay $960 in taxes. The correct term associated with the $960 is referred to as the: Group of...
CHOSEN TOPIC(S): What are the statistics of an abusive upbringing that connects with recurrently violent offenders? (Realistic motif) Does the sensationalized portrayal of famed criminals in media...
Cema Inc. acquires bonds with a maturity value of $900,000 for $870,000. How would Cema record the purchase of these bonds in its journal entry
Giant ACO has agreed to a shared savings rate of 65 percent and a shared loss rate of 40 percent with CMS. The benchmark for the year is $3M. The actual expenses for the year are $3.2M. How much...
1. Why did Chase originally agree to meet with Baer? 2. Then why did Chase meet with Baer in New Jersey later that year?
What is the expected payoff of an investment that yields $5,000 with a probability of 0.15 and $500 with a probability of 0.85? Select one: O a. $325 O b. $5,500 O c. $2,750 O d. $1,175
Would the functions that must be provided and the development of wholesaling and retailing systems be any different in a command economy from those in a market-directed eco n omy?
Explain why a market-directed macro-marketing system encourages innovation. Give an example.
Define the marketing concept in your own words, and then explain why the notion of profit is usually included in this definition.
If 37% of the people in a community use the emergency room at a hospital in one year, a sample of 15 people use the emergency room. Find the probability of at least 8 people use the emergency room.
Solve the following equation 25x-2=18 4 (Type an exact answer.)
Suppose the lives of light bulbs for a certain brand are normally distributed, with a mean life of 1900 hr and a standard deviation of 100 hr. Find the probability that a light bulb of that brand...

An investor has a base (10 log) utility function: (U(x)=log _{10}(x)). Investment 1 has payoff ((1,100)) with

Question:

Step by Step Answer:

Investment Analysis a MeanVariance Dominance To determine meanvariance dominance we need to compare ...View the full answer

Mathematical Techniques In Finance An Introduction Wiley Finance

Students also viewed these Business questions