Fred Has a Utility Function U = 10P ⁰

question 42

Multiple Choice

Fred has a utility function U = 10P ^0.5 and also has an investment opportunity that will pay 25 with probability 0.4 and 100 with probability 0.6.What is the certainty equivalent of this opportunity?

• A) 64.
• B) 70.
• C) 80.
• D) 83.7.
• E) None of the above.

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Definitions:

Endorphin Agonist

A substance that mimics the action of endorphins, neurotransmitters in the brain that reduce pain and elicit feelings of pleasure.

Morphine

Morphine is a potent opiate analgesic medication derived from the poppy plant used to relieve severe pain.

Cerebrospinal Fluid

A clear, colorless body fluid found in the brain and spinal cord that acts as a cushion for the brain's cortex, providing basic mechanical and immunological protection to the brain inside the skull.

Central Nervous System

The complex of nerve tissues that controls the activities of the body, comprising the brain and spinal cord.