Natasha is going to buy a risky asset that has an expected value of $62, which yields an expected utility of 146. Her risk premium is $19. What is her certainty equivalent?
A)$19
B)$43
C)$81
D)$208

Question

Quizplus · Accepted Answer

The certainty equivalent is the amount of guaranteed money that makes the investor indifferent between the guaranteed amount and a risky asset. It is calculated by subtracting the risk premium from the expected value of the risky asset. Therefore, the certainty equivalent = $62 - $19 = $43.

Natasha Is Going to Buy a Risky Asset That Has