Question 1: Suppose an investment has three possible outcomes. There is a 30% chance that it brings a profit of 22,500. There is a 30% chance that it brings a profit of 10,000. There is a 40% chance that is brings a profit of 0. What is the expected profit (or expected value of the profit) for this investment?
Question 2: Continue to suppose an investment has three possible outcomes. There is a 30% chance that it brings a profit of 22,500. There is a 30% chance that it brings a profit of 10,000. There is a 40% chance that is brings a profit of 0. Suppose a decision makers utility function can be described by U(w)=w^0.5. What is the expected utility of this investment?
Question 3: Continue to suppose an investment has three possible outcomes. There is a 30% chance that it brings a profit of 22,500. There is a 30% chance that it brings a profit of 10,000. There is a 40% chance that is brings a profit of 0. Suppose a decision makers utility function can be described by U(w)=w^0.5. What is this investment's certainty equivalence for this decision maker?