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What is the expected profit

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Reference no: EM131077180

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?

Reference no: EM131077180

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