QUESTION 1:
Suppose an investment has three possible outcomes. There is a 30% chance that it brings a profit of 4,000,000. There is a 50% chance that it brings a profit of 1,000,000. There is a 20% chance that is brings a profit of 0. What is the expected profit (or expected value of the profit) for this investment?
QUESTION 2:
Continue to suppose an investment has three possible outcomes. There is a 30% chance that it brings a profit of 4,000,000. There is a 50% chance that it brings a profit of 1,000,000. There is a 20% chance that is brings a profit of 0. Suppose a decision makers utility function can be described by U(w)^0.5. What is the expected utility of this investment?
QUESTION 3:
Continue to suppose an investment has three possible outcomes. There is a 30% chance that it brings a profit of 4,000,000. There is a 50% chance that it brings a profit of 1,000,000. There is a 20% chance that is brings a profit of 0. Suppose a decision makers utility function can be described by U(w)^0.5. What is this investment's certainty equivalence for this decision maker?