You are considering investing $10,000 in a risky portfolio. The value of the risky portfolio...
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You are considering investing $10,000 in a risky portfolio. The value of the risky portfolio in a year can be one of the following four scenarios. -------------------- -------------------- State probability Portfolio values
Best 10% $13,000
Good 30% $11,000
Average 40% $10,500
Recess 20% $8,000
Your power utility function has a gamma value of 2.
Find your certainty equivalent of the risky investment.
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