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Consider a person with the following utility function over wealth where e is the exponential function approximately equal to and w wealth in hundreds of thou- pose that this

Consider a person with the following utility function over wealth: u(w) - e, where e is the exponential function (approximately equal to 2.7183) and w = wealth in hundreds of thou- pose that this person has a 40% chance of wealth of $50,000 and a 60% chance of wealth of $1,000,000 as sum- sands of dollars. Sup marized by P(0.40, $50,000, $1,000,000). a. What is the expected value of wealth? b. Construct a graph of this utility c. Is this person risk averse, risk neutral, or d. What is this person's certainty equiva- function. a risk seeker? lent for the prospect?an

Apr 04 2020 View more View Less

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