Unformatted text preview: s question about the return of Fund A in a good economy. It could be higher or lower than $10,000. What
value for this would cause a person to be indifferent between Fund A and Fund B (i.e., the EMV(Fund A) and EMV (Fund B)
would be the same)?
Let X = Payoff for Fund A in a good economy
EMV (Fund A) = EMV (Fund B)
X (0.2) + 2,000(0.3) + (-5,000)(0.5) = 2,400
0.2X = 4,300
X = 21,500...
View Full Document
- Spring '14
- perfect information