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Statistics> Questions and Answers > SOLVED: Assessed risk tolerance of Cathy is $8700. Assume that her preferences can be modeled with the exponential utility function U(x) = 2.5700 – 1.8200e–x/R

SOLVED: Assessed risk tolerance of Cathy is $8700. Assume that her preferences can be modeled with the exponential utility function U(x) = 2.5700 – 1.8200e–x/R

Assessed risk tolerance of Cathy is $8700. Assume that her preferences can be modeled with the exponential utility function U(x) = 2.5700 – 1.8200e–x/R Suppose that she faces the following gamble: Win $3213.03 with probability 0.30, Lose $1269.79 with probability 0.15, Win $1887.74 with probability 0.20, Win nothing with probability 0.15, and Lose $811.79 with probability 0.20. 1) What is the expected utility of the gamble? a. 0.7986 b. 0.9111 c. 0.6842 d. 1.3000 e. 0.5000 ... [Show More]

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