Expected utility in portfolio theory Investors can choose one of the two independent investment assets, A andB. The payoff per unit invested in each asset is uniformly distributed withparameters as given below.AU(1, 1.1)BU(0.9, 1.2)——Suppose that an investor with initial wealth of 1 chooses one of theseassets based on the utility function u(x) = · exp (−3x).Calculate the expected utilities of investing in A and B.

Expected Mean in case of uniform distribution:E[X] = (a + b) / 2

Investors can choose one of the two independent investment assets, A an B. The payoff per unit invested in each asset is uniformly distributed wit parameters as given below. A U(1, 1.1) B U(0.9, 1.2) Suppose that an investor with initial wealth of 1 chooses one of these assets based on the utility function u(x) = - exp(-3x). Calculate the expected utilities of investing in A and B.

Investors can choose one of the two independent investment assets, A an B. The payoff per unit invested in each asset is uniformly distributed wit parameters as given below. A U(1, 1.1) B U(0.9, 1.2) Suppose that an investor with initial wealth of 1 chooses one of these assets based on the utility function u(x) = - exp(-3x). Calculate the expected utilities of investing in A and B.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.1P

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