Question

Questions 1 – 4 refer to prospects X and Y below, as well as the following information

x = ($0,0.25;$50,0.50;$100,0.25)   y = ($20,0.25;$50,0.50;$80,0.25)

Mark has utility of wealth given by u(x)=x^0.4

1.) What is the expected value of prospect X (EV(X))?

2.) What is the standard deviation of prospect X (SD(X))? Round your answer to the nearest cent, and don’t worry, I’ll include a healthy margin of error so you won’t get this wrong due to rounding).

3.) What is the value of the expected utility of Y for Mark (EU(Y))?

4.) How much more is Mark willing to spend to acquire Y than to acquire X (so, what is the value of CE(Y)-CE(X))? (Hint: If u(x)=x^0.4, the u^-1(x)=x^2.5)

Answer 1

95+25 50 (350×5)-3500 3152 135018500 then EUPe UCYi 3.968 4 ce(y) CE) -8196834. Jaus cey_ .cex, 15-5629 $