We are going to invest $1,000 for a period of 6 months.Two potential investments are available: T-bills and gold. Ifthe $1,000 is invested in T-bills, we are certain to end the6-month period with $1,296. If we invest in gold, there is a34chance that we will end the 6-month period with $400 anda 14chance that we will end the 6-month period with $10,000.If we end up with x dollars, our utility function is given byu(x) x1/2. Should we invest in gold or T-bills?
We are going to invest $1,000 for a period of 6 months.Two potential investments are available: T-bills and gold. Ifthe $1,000 is invested in T-bills, we are certain to end the6-month period with $1,296. If we invest in gold, there is a34chance that we will end the 6-month period with $400 anda 14chance that we will end the 6-month period with $10,000.If we end up with x dollars, our utility function is given byu(x) x1/2. Should we invest in gold or T-bills?
Practical Management Science
6th Edition
ISBN:9781337406659
Author:WINSTON, Wayne L.
Publisher:WINSTON, Wayne L.
Chapter11: Simulation Models
Section: Chapter Questions
Problem 45P: You now have 10,000, all of which is invested in a sports team. Each year there is a 60% chance that...
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We are going to invest $1,000 for a period of 6 months.
Two potential investments are available: T-bills and gold. If
the $1,000 is invested in T-bills, we are certain to end the
6-month period with $1,296. If we invest in gold, there is a
3
4
chance that we will end the 6-month period with $400 and
a 1
4
chance that we will end the 6-month period with $10,000.
If we end up with x dollars, our utility function is given by
u(x) x1/2. Should we invest in gold or T-bills?
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