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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&quot; 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

3 Uncertainty An inveatcr ia cnnm'dering whether tn purchase NHcrcenft stack. The investor‘s utilitj,r func-
tinn ia UH} = fl“. where a&quot; 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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