1 An investor has a utility function u(x)=x, the investor maximizes Expected Utility, and is...
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1 An investor has a utility function u(x)=x, the investor maximizes Expected Utility, and is faced with an investment that pays $100 with probability 20% or $10 with probability 80%. If her current wealth is $100, how much will the investor pay for this investment?
2 Redo the above if current wealth is $1000. Is this result a surprise?
3 For an investor with a mean-variance utility function with coefficient of risk aversion A. Show that the indifference curve is increasing and convex. Explain your answer intuitively.
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