(Answered) Behavioral Finance

Consider a person with the following utility function over wealth: u(w) = ew, where e is the exponential function (approximately equal to 2.7183) and w = wealth in hundreds of thousands 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?;-----------------------------------------------------------------------;An individual has the following utility function;u(w) = w.5 where w = wealth.;a. Using expected utility, order the following;prospects in terms of preference;from the most to the least preferred;P1(.8, 1,000, 600);P2(.7, 1,200, 600);P3(.5, 2,000, 300);b. What is the certainty equivalent for;prospect P2?;c. Without doing any calculations, would;the certainty equivalent for prospect P1;be larger or smaller? Why?;-----------------------------------------------------------------;A stock has a beta of 1.2 and the standard deviation;of its returns is 25%. The market risk;premium is 5% and the risk-free rate is 4%.;a. What is the expected return for the;stock?;b. What are the expected return and standard;deviation for a portfolio that is;equally invested in the stock and the;risk-free asset?;c. A financial analyst forecasts a return of;12% for the stock. Would you buy it?;Why or why not?
More Details:

Behavioral Finance

 


Solution details:
STATUS
Answered
QUALITY
Approved
ANSWER RATING

This question was answered on: Dec 18, 2020

PRICE: $15

Solution~00031147633740.zip (25.37 KB)

Buy this answer for only: $15

This attachment is locked

We have a ready expert answer for this paper which you can use for in-depth understanding, research editing or paraphrasing. You can buy it or order for a fresh, original and plagiarism-free solution (Deadline assured. Flexible pricing. TurnItIn Report provided)

Pay using PayPal (No PayPal account Required) or your credit card . All your purchases are securely protected by .
SiteLock

About this Question

STATUS

Answered

QUALITY

Approved

DATE ANSWERED

Dec 18, 2020

EXPERT

Tutor

ANSWER RATING

GET INSTANT HELP

We have top-notch tutors who can do your essay/homework for you at a reasonable cost and then you can simply use that essay as a template to build your own arguments.

You can also use these solutions:

  • As a reference for in-depth understanding of the subject.
  • As a source of ideas / reasoning for your own research (if properly referenced)
  • For editing and paraphrasing (check your institution's definition of plagiarism and recommended paraphrase).
This we believe is a better way of understanding a problem and makes use of the efficiency of time of the student.

Order-Now