Calculate the certainty equivalents

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Reference no: EM131972599

• Suppose an investor has utility of wealth u(x) = ln(x), current wealth is $2, a gamble costs $1 and pays $0 or $2 (equally likely)

• Would the investor accept the gamble?

• What if the gamble cost 0.50?

• How do the above choices change if u(x) = 1 – 1/x?

Calculate the certainty equivalents

Reference no: EM131972599

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