pleases muje iska soloution send kr dain 12 last date ha
INSTRUCTIONS FOR SOLVING ASSIGNMENT 01
Last Date of Submission: 12th November 2009
Marks: 15
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Assignment 1 ECO402
Assignment 1
ECO402 (MICROECONOMICS)
Semester Fall 2009
Total Marks:15
Question:
Suppose that two investments have been made by Aslam with the
same three payoffs, but the probability associated with each payoff
differs, as illustrated in the table below:
Payoff
Probabilities for
Investment A
Probabilities for
Investment B
$400 0.20 0.10
$350 0.60 0.80
$300 0.20 0.10
a. Find the expected return on each investment.
(Marks: 2+2)
b. Calculate the standard deviation of each investment. And interpret
which investment is more risky.
(Marks: 3+3+1)
c. Suppose Aslam has the utility function U=3I, where I denotes the
payoff. Now calculate expected utility from each investment and
interpret which investment he would prefer?
(Marks: 1.5+1.5+1)