Guidelines for completing the first problem on Problem Set 4

During class today, I elaborated further on my blog posting entitled “Hints for solving problem set #4 (Hint #1)”. Specifically, at your option, you may solve the first problem via either calculus or a spreadsheet model.

If you decide to solve the first problem by building your own spreadsheet model, then you must email your spreadsheet model to “risk@garven.com” prior to the start of class on Thursday. In the problem set that you turn in at the beginning of class on Thursday, please reference your spreadsheet when you explain your answers for this problem. However, if you rely upon the calculus for maximizing expected utility, then no spreadsheet is necessary, although you might consider validating the result that you obtain via calculus with a spreadsheet model anyway. Or, you could validate your spreadsheet model with the calculus.

In order to solve this problem via spreadsheet, you’ll need to use the so-called Solver Add-in. The instructions for loading the Solver add-in into Excel are provided at the following webpage:

https://support.office.com/en-us/article/load-the-solver-add-in-in-excel-612926fc-d53b-46b4-872c-e24772f078ca

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