19. An individual has initial wealth Wo = 3 and has the opportunity to invest some quantity of money x in an extremely risky corporate bond. With probability p= 1/4, the bond will be worth 10x at maturity. With probability 1 – p, it will be worth zero. The individual's utility function over final wealth is u(W) = W0.5. What is the level of investment x that maximizes expected utility? (а) 0 (b) 1 (c) 4/3 (d) V3 (e) 2

19. An individual has initial wealth Wo = 3 and has the opportunity to invest some quantity of money x in an extremely risky corporate bond. With probability p= 1/4, the bond will be worth 10x at maturity. With probability 1 – p, it will be worth zero. The individual's utility function over final wealth is u(W) = W0.5. What is the level of investment x that maximizes expected utility? (а) 0 (b) 1 (c) 4/3 (d) V3 (e) 2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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