A04 - one of these possibilities will be selected $1,000...

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Managerial ACG 2071 Professor Lin Spring 2006 Assignment #04 1. Ralph faces five distinct choices, with probabilities given in the table. #1, for example, offers equally likely odds on the four possible cash outcomes; #4 will result in $2,000 with a probability of 0.6 and $3,000 with a probability of 0.4. Eventually, one, but only
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Unformatted text preview: one, of these possibilities will be selected. $1,000 $2,000 $3,000 $4,000 #1 0.25 0.25 0.25 0.25 #2 0.5 0.5 #3 0.4 0.6 #4 0.6 0.4 #5 0.4 0.6 Ralph has root utility, given by $ . Determine Ralph’s certainty equivalent and risk premium for each of the five choices. Which one would Ralph pick? 2. 4-10 3. 4-15...
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