Suppose my utility function for asset position x is given by u(x) = In(x).**Am I risk-averse, risk-neutral, or risk-seeking?I now have $20,000 and am considering the following two lotteries:L1: With probability 1, I lose $1,000.L2: With probability .9, I gain $0. L2: With probability .1, I lose $10,000.Determine which lottery I prefer and the risk premium of L2.

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Answered: Suppose my utility function for asset…

College Algebra

7th Edition

ISBN:9781305115545

Author:James Stewart, Lothar Redlin, Saleem Watson

Publisher:James Stewart, Lothar Redlin, Saleem Watson

Chapter9: Counting And Probability

Section9.3: Binomial Probability

Problem 2E: If a binomial experiment has probability p success, then the probability of failure is...

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Similar questions

If you played the game in Exercise 1 many times, then you would expect your average payoff per game lo be about $ ____________.
Gabrielle has purchased the 2-year extended warranty from a retailer to cover the value of hers new cellphone in case if it gets damaged or becomes inoperable for the price of $25. Gabrielle's cellphone is worth $1400 and the probability that it gets damaged or becomes inoperable during the length of the extended warranty is estimated to be 4%. Let XX be the retailer's profit from selling the extended warranty. Answer the following questions: 1. Create the probability distribution table for XX : XX outcome profit xx ,$ P(X=x)P(X=x) the cellphone gets damaged or becomes inoperable no claim filed 2. Use the probability distribution table to find the following: E[X]=μX=E[X]=μX= dollars. (Round the answer to 1 decimal place.) SD[X]=σX=SD[X]=σX= dollars. (Round the answer to 1 decimal place.)
When it is sunny, Joe's ice cream truck generates a profit of $547 per day, when it is not sunny, the profit is $250 per day, and when the truck is not out there selling ice cream, Joe loses $120 per day. Suppose 8% of a year Joe's truck is on vacation, and 86% of a year the truck is selling ice cream on sunny days, what is the expected daily profit the truck generates over a year? Enter answer as a decimal rounded to TWO digits after the decimal point.
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A small-town bakery has shelf space for five pieces of a perishable bread. The unit cost of baking each piece of bread is PhP 82 and it can be sold by the baker for PhP 159 each. The probabilities for the day's demand in pieces are given below: Demand (x) 1 4 f(x) 0.15 0.12 0.22 0.19 0.12 However, pieces of bread that were unsold during the day are sold to another bakery that makes pudding and french toast. This bakery buys the bread for PhP 58 each. But due to its limited capital, this bakery could purchase just up to 2 pieces of bread. What is the expected profit if the bakery bakes 4 pieces in a day?

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