$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Investiment } A$ $ \quad $$ \quad $$ \quad $$ \quad $$ \quad $$\text { Investment } B$
$\begin{array}{|l|l|l|l|l|}
\hline & \text { Good year } & \text { Bad year } & \text { Good year } & \text { Bad year } \
\hline \text { Probability } & 0.80 & 0.2 & 0.90 & 0.1 \
\hline \text { Pay-off } & 140 & 45 & 110 & 70 \
\hline
\end{array}$
-Given the above information,what is the expected utility for investment A?

Question

$  \quad $$  \quad $$  \quad $$  \quad $$  \quad $$  \quad $$  \quad $$  \quad $$  \quad $$\text { Investiment } A$   $  \quad $$  \quad $$  \quad $$  \quad $$  \quad $$\text { Investment } B$
$\begin{array}{|l|l|l|l|l|}
\hline & \text { Good year } & \text { Bad year } & \text { Good year } & \text { Bad year } \
\hline \text { Probability } & 0.80 & 0.2 & 0.90 & 0.1 \
\hline \text { Pay-off } & 140 & 45 & 110 & 70 \
\hline
\end{array}$
-Given the above information,what is the expected utility for investment A?

Quizplus · Accepted Answer

According to equation 7.1 we can compute the expected utility for investment A as follows: 0.80 F1F1F1S1F1F1F10 ln(140)+ 0.2 F1F1F1S1F1F1F10 ln(45)= 4.714

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