Consider an investor with a certain income of 20 contemplating an investment project with a 50 percent chance of delivering a "good" return of 40,and a 50 percent chance of delivering a "bad" return of -20.
The investor consumes the sum of her certain income and her investment return in any state.Thus she consumes 20 in either state if she does not invest,and consumes 60 and 0 in the good and bad states if she does invest.Suppose further that her utility function is given by:(10.22) u(c) = c if

Question

Consider an investor with a certain income of 20 contemplating an investment project with a 50 percent chance of delivering a "good" return of 40,and a 50 percent chance of delivering a "bad" return of -20.
The investor consumes the sum of her certain income and her investment return in any state.Thus she consumes 20 in either state if she does not invest,and consumes 60 and 0 in the good and bad states if she does invest.Suppose further that her utility function is given by:(10.22) u(c) = c if < 2= 20 +0.4(c-20)if c ≥ 20.
What is the expected return for this project? What type f utility function are theses?

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The Answer of Consider an investor with a certain income of 20 contemplating an investment project with a 50 percent chance of delivering a "good" return of 40,and a 50 percent chance of delivering a "bad" return of -20.
The investor consumes the sum of her certain income and her investment return in any state.Thus she consumes 20 in either state if she does not invest,and consumes 60 and 0 in the good and bad states if she does invest.Suppose further that her utility function is given by:(10.22) u(c) = c if < 2= 20 +0.4(c-20)if c ≥ 20.
What is the expected return for this project? What type f utility function are theses?

Consider an Investor with a Certain Income of 20 Contemplating