Construct a graph of this utility function recall your


Consider a person with the following utility function over wealth: u(w) = ew, where e is the exponential function (approximately equal to 2.7183) and w = wealth in hundreds of thousands of dollars. Suppose that this person has a 40% chance of wealth of $100,000 and a 60% chance of wealth of $2,000,000 as summarized by P(0.40, $100,000, $2,000,000).

a. What is the expected value of wealth?

b. Construct a graph of this utility function (recall your excel?).

c. Is this person risk averse, risk neutral, or a risk seeker?

d. What is this person’s certainty equivalent for the prospect? In your response be clear which part you are addressing.

Request for Solution File

Ask an Expert for Answer!!
Financial Management: Construct a graph of this utility function recall your
Reference No:- TGS02249424

Expected delivery within 24 Hours