Project actualized at the risk-free rate

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Reference no: EM132005991

You are offered an investment for a year which requires that you commit now $1,000. At the end of the year, the investment provides a rate of return which assumes two values (0.20, -0.30) with probabilities (0.60, 0.40). Assume that you have an exponential utility function with a positive index of aversion equal to 0.1. What is the expected utility of the project actualized at the risk-free rate of 7%. Is this a worthwhile investment?

Reference no: EM132005991

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