Jen has a concave utility function u(w) = w^(1/2). Her only major asset is shares...
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Jen has a concave utility function u(w) = w^(1/2). Her only major asset is shares in an Internet start-up company. Tomorrow she will learn her stock's value. She believes that it is worth $144 with probability 2/3 and $225 with probability 1/3. a) What is Jens attitude toward risk? b) Compute the expected value of the lottery, the expected utility, and the utility of the expected value. c) Define and compute the risk premium. d) Illustrate your answer to sub-question c) by means of a carefully drawn diagram.
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