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  • Comparing Investments - An Example: D E A F B C

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    This document compares the expected returns, risks, and utilities of six potential investments A-F. It shows the probability and return outcomes for each investment. Investment E has the highest expected return at 12.5% and investment B has the highest expected utility at 10.4881. The document also includes charts showing the utility and marginal utility curves for a $100 investment with a square root utility function.

    Deskripsi Asli:

    Utility Exam

    Judul Asli

    Utility Exam

    Hak Cipta

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    This document compares the expected returns, risks, and utilities of six potential investments A-F. It shows the probability and return outcomes for each investment. Investment E has the highest expected return at 12.5% and investment B has the highest expected utility at 10.4881. The document also includes charts showing the utility and marginal utility curves for a $100 investment with a square root utility function.

    Hak Cipta:

    © All Rights Reserved
    Unduh sebagai PDF, TXT atau baca online dari Scribd
    Tandai sebagai konten tidak pantas
    10 tayangan1 halaman

    Comparing Investments - An Example: D E A F B C

    Diunggah oleh

    kauti
    This document compares the expected returns, risks, and utilities of six potential investments A-F. It shows the probability and return outcomes for each investment. Investment E has the highest expected return at 12.5% and investment B has the highest expected utility at 10.4881. The document also includes charts showing the utility and marginal utility curves for a $100 investment with a square root utility function.

    Hak Cipta:

    © All Rights Reserved
    Unduh sebagai PDF, TXT atau baca online dari Scribd
    Tandai sebagai konten tidak pantas
    dari 1

    Comparing Investments - an example

    Investment
    Distribution

    Return

    Probability Return

    Probability Return

    Probability Return

    Probability Return

    Probability Return

    Probability

    8%

    Expected return
    Standard deviation of the return

    10%

    8.00%

    8%

    0.25

    6%

    0.5

    10%

    0.25

    9%

    0.25

    10%

    0.5

    14%

    0.5

    12%

    0.5

    13%

    0.5

    12%

    0.25

    14%

    0.25

    15%

    0.25

    10.00%

    10.00%

    10.00%

    12.00%

    12.50%

    0.00%

    0.00%

    1.414%

    4.00%

    1.414%

    2.18%

    Expected utility or the return*

    10.3923

    10.4881

    10.4879

    10.4864

    10.5828

    10.6061

    The dollar Return on $100

    -25

    W = Wo + Return = 100 + x
    The Utility = U(W)

    -20

    -15

    -10

    -5

    10

    15

    20

    25

    30

    75

    80

    85

    90

    95

    100

    105

    110

    115

    120

    125

    130

    8.6603

    8.9443

    9.2195

    9.4868

    9.7468

    10.0000

    10.2470

    10.4881

    10.7238

    10.9545

    11.1803

    11.4018

    0.2840

    0.2753

    0.2673

    0.2600

    0.2532

    0.2470

    0.2411

    0.2357

    0.2306

    0.2259

    0.2214

    The Marginal Utility

    *Assumptions and Notation:


    The initial wealth = Wo = $100

    U(W) = W
    11.50

    The investment = $100


    The dollar return = x
    The final wealth = W = Wo + x

    11.00
    10.50

    The utility function U(W) = W


    10.00
    9.50
    9.00
    8.50
    70

    75

    80

    85

    90

    95

    100

    105

    110

    115

    120

    125

    130

    135
    W

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