Question

3) Steve has received a stock tip from Monica. Monica has told him that XYZ Corp. will increase in value by 100%. Steve believes that Monica has a 25% chance of being correct. If Monica is incorrect, Steve expects the value of XYZ Corp. will fall by 50%. What is Steve's expected utility from buying $1,000 worth of XYZ Corp. stock? Steve's utility of income is U(I) = 501. Should Steve purchase the stock?

Answer 1

ali) - so I U (1000) - JoC 100o) - JV000 26 x is the amount then value inmors by 100% by 25th chance vala fall by so % by nechame her Capeir value - 0.95 (2x) + o.ntoux) 0.5 x + 0.3% - 0875 x purchase the stock. Thus shere shouldnot