Decisions Involving Uncertainty - End of Chapter Problem You currently have $10,000 in total wealth and rate your current utility at 4.25. You are deciding if you should invest your money in your friend's automotive restoration business. There is a 50% probability that you will double your money, in which case your total utility will be 6. There is a 50% probability that your friend's business will fail and you will lose the entire $10,000 and your total utility will be 2.5. a. What is the expected utility of investing in your friend's company? Expected utility: b. If you are risk averse, should you take the gamble and invest in your friend's company? invest in your friend's company. c. Would your answer to part b be different if there was a 75% chance that you would double your money by investing in your friend's business? Your answer to part b You

Decisions Involving Uncertainty - End of Chapter Problem You currently have $10,000 in total wealth and rate your current utility at 4.25. You are deciding if you should invest your money in your friend's automotive restoration business. There is a 50% probability that you will double your money, in which case your total utility will be 6. There is a 50% probability that your friend's business will fail and you will lose the entire $10,000 and your total utility will be 2.5. a. What is the expected utility of investing in your friend's company? Expected utility: b. If you are risk averse, should you take the gamble and invest in your friend's company? invest in your friend's company. c. Would your answer to part b be different if there was a 75% chance that you would double your money by investing in your friend's business? Your answer to part b You

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter16: Real Estate And High-risk Investments

Section: Chapter Questions

Problem 2FPC

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