- The best essay writing company you will ever find online
- +1 (510) 327 2058
- support@bestessayswriters.com

Question 2Suppose that Jake considers two alternative investment plans of $1000 for one-year. Investment A is a no-risk plan: deposit into a bank account with interest rates with 5%. That is it makes $1050 in a year for sure. Investment B is a risky plan: buying stocks. This plan could make $1500 in a year if the economy is good but if the economy is bad in a year it could make only $600. According to recent forecases by economists the probability that the economy is good in a year is 1/2.1. Find the expected income and standard deviation of Investment B. (3 points)Suppose Jakes utility function isU=I whereIis the income. Find the expected utility from each investment. (3 points)Which investment would Jake choose? Why?(2 points)Is Jake risk-loving? Explain why shortly. (2 points)(Bonus Questions) How much of certain income would he give up to avoid risk? (Hint: What is a certain income that yields the same utility as an uncertain income yields?) (4 points)

We use cookies to ensure that we give you the best experience on our website. If you continue to use this site we will assume that you are happy with it.Ok