Hugo has a concave utility function of U(W)=√W. His only asset is shares in an Internet start-up company. Tomorrow he will learn the stock's value. He believes that it is worth $225 with probability 80% and $256 with probability 20%. What is his expected utty? What risk premium would he pay to avoid bearing this risk? The stock's expected utility (EU) is EU = (Enter a numeric response using a real number rounded to two decimal places.)

Hugo has a concave utility function of U(W)=√W. His only asset is shares in an Internet start-up company. Tomorrow he will learn the stock's value. He believes that it is worth $225 with probability 80% and $256 with probability 20%. What is his expected utty? What risk premium would he pay to avoid bearing this risk? The stock's expected utility (EU) is EU = (Enter a numeric response using a real number rounded to two decimal places.)

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.7P

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