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November 3rd, 2015, 01:38 AM  #1 
Member Joined: Sep 2013 Posts: 83 Thanks: 0  "Mild" Risk Aversion
Suppose that the average investor in a hedge fund exhibits mild risk aversion with utility function for wealth (x) of the form u(x) = 3x 4/5 The average investor has an amount X invested in the fund, where 70% of X is invested in risky capital assets and the remaining 30% is invested in "riskfree" moneymarket assets. Assume that due to a recent crisis within the capital markets there is now a 35% chance that the value of the risky capital assets held by the average investor will decrease by 40% during the next few months. (A) Verify both graphically and mathematically that the average investor exhibits risk aversion? Any good guides as to verify it mathematically? (the graphical part is fairly obvious) 

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aversion, mild, risk 
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