Make a graph of utility function

Assignment Help Corporate Finance
Reference no: EM1347888

Consider a person with the following utility function over wealth: u(w)=e^w, where e is the exponential function (approximately equal to 2.7183) and w=wealth in hundreds of thousand of dollars. Suppose that this person has a 40% chance of wealth of $50,000 and a 60% chance of wealth of $1,000,000 as summarized by:
P(0.40, %50,000, $1,000,000).

A. What is the expected value of wealth?
B. Construct a graph of this utility function.
C. Is this person risk averse, risk neutral, or a risk seeker?
D. What is this person's certainty equivalent for the prospect?

 

Reference no: EM1347888

Questions Cloud

Illustrate what combination of inputs the plant should use : The firm's vice president for manufacturing hires you to out illustrate what combination of inputs the plant should use to produce 20 units of output per period. What advice would you give.
Factors influenceing organizational change : How would you try to analyze the impact on employee motivation of a new goal or objective?
Number of pounds of raw materials : Compute the number of units of product to be produced during October. Compute  the number of pounds of raw materials to be purchased during October.
Protocol implementations to permit all nodes to communicate : Illustrate how many protocols and protocol implementations are required to permit all nodes to communicate?
Make a graph of utility function : Suppose a person with the utility function over wealth where e is the exponential function and w is equal to wealth in hundreds of thousands of dollars.
Calculate the torque required to generate the acceleration : Light is an electromagnetic wave and travels at a speed of 3.00 x 10^8 m/s. The human eye is most sensitive to yellow-green light, that has a wavelength of 5.45 x 10^-7m. How you find the frequency of this light.
Sharpe corporation projected sales : Make a cash budget for Sharpe covering the first seven months of 2004. Sharpe has $200,000 in notes payable due in July that must be repaid or renegotiated for an extension. Will the firm have ample cash to repay the notes?
Flexible budgets-design and budget elements : Design and Budget Elements of Proposal Paper Select a proposal type and make a 1050- to 1750-word paper selecting one of following elements in budget proposals:
Group identification : Group identification - Show two of the groups/teams to which you belong or have belonged to in the past.

Reviews

Write a Review

Corporate Finance Questions & Answers

  Computation of present value of bond

Computation of present value of bond to check whether it is overpriced - Ron Rhodes calles his broker to inquire about purchasing a bond of Golden Years Recreation Corporation

  Describe methods of future financial needs

Financial prediction is important because it adds discipline to way an industrialist thinks about venture. Forecasting helps estimates cash needs and timing of these needs.

  Explain the operating profit margin

Select any public company, & present findings from your financial analysis in a report. The report must include the following;

  Analysis of financial statement considering ratio analysis

Analysis of financial statement considering ratio analysis and giving recommendation - Submit a two-page 600 to 700 word written report explaining how you would analyze the financial performance of a publicly traded corporation

  How many ties and scarfs should the firm

Computation of quantity to obtain required profit per process - How many ties and scarfs should the firm make to maximize its profit if they obtain $3?

  Calculate the future value of stock

A share of stock sells for 53 dollar today. The beta of the stock 1.2, & expected return on the market is 12 percent. The stock is expected to pay a dividend of 1.10 dollar in one year.

  Revenue from sales based on projected net income

Forecasting revenue from sales based on projected net income and operating costs - What level of sales would generate $2,500,000 in net income?

  Questions based on internal service fund and general fund

The City of Carefree voted to establish an internal service amount to account for its printing services. The City transferred $500,000 cash from General Fund to the newly created internal service amount.

  Describe key risk indicators

Key risk indicators act as signals for sound risk management, potentially helping to prevent or prepare for risk exposure.

  Find the companies total value with leverage

A firm is on the verge of a new product launch.  Depending on how well product does in marketplace, three possible outcomes for next years valuation are:  $210 m, $150 m or $60 m.

  Difference between arithmetic and geometric averages

Please explain and define in your own terms the difference between arithmetic and geometric averages.

  Hedging against stock prices

Assume you own hundred shares of Dell Inc. stock. Today it is trading at $15/share, but you're worried Michael Dell might retire again, causing the price to go down.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd