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3 Uncertainty An inveatcr ia cnnm'dering whether tn purchase NHcrcenft stack. The investor's utilitj,r func- tinn ia UH} = fl". where a" is the

Micromanagement question (picture of question attached)

utility function is U(r) = r^1/2

r(.01) = probability of 0.2

r(.04) = probability of 0.4

r(.09) = probability of 0.3

r(25) = probability of .1


q1. calculate the expected return

q2. calculate the expected utility

q3. calculate the certainty equivalent

q4. calculate the risk premium


Screen Shot 2018-08-07 at 7.36.16 am.png

Screen Shot 2018-08-07 at 7.36.16 am.png

3 Uncertainty An inveatcr ia cnnm'dering whether tn purchase NHcrcenft stack. The investor‘s utilitj,r func-
tinn ia UH} = fl“. where a" is the return that the inveetnr earns. The return is uncertain. r. chews the diatributinn nt' returns. 1. Calculate the expected return. 2. Calculate the expected utility. 3. Calculate the certaint},r equivalent. 4. Calculate the rial: premium. 5. What is this investor‘s attitude tnwarde risk?

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