Title: Navigating Risk Aversion Tagline: Navigating Risk Aversion: How Evelyn Can Optimize Her $1.8M IRA Inheritance with Expected Utility Problem: Evelyn, a 68-year-old widow, recently inherited $1.8 million in a Traditional IRA. Overwhelmed and risk-averse after her husband's passing, she's unsure how to invest it to generate reliable income while minimizing potential losses. She is torn between a lower-risk bond portfolio offering a guaranteed 4% annual return and a more volatile stock portfolio with a 50% chance of a 10% return and a 50% chance of a 2% return. She wants to determine which option provides her with the highest expected utility, considering her risk aversion. She values certainty and wants to understand the certainty equivalent of the stock portfolio. Solution: By using the Expected Utility Calculator, Evelyn can quantify her risk aversion and determine the investment strategy that maximizes her utility. The calculator will allow her to compare the expected utility of the bond portfolio with the stock portfolio and find the certainty equivalent for the stock option. This knowledge will empower her to make an informed decision that aligns with her comfort level and financial goals. ROI: By understanding her certainty equivalent, Evelyn can make a more informed decision. If the certainty equivalent of the stock portfolio is higher than the guaranteed return of the bond portfolio, she knows the stock portfolio is worth considering despite its volatility. For example, If her calculated certainty equivalent for the stock portfolio is $80,000 and the guaranteed return from the bond portfolio is $72,000, she can confidently choose the stock portfolio, knowing that it will yield, on average, $8,000 more than the bonds, while remaining cognizant of the inherent risk. Understanding her individual risk profile will enable her to avoid emotionally driven decisions that could cost her thousands in lost potential gains. Description: Ensure your financial decisions align with your risk tolerance and maximize your retirement income. This calculator helps you understand your certainty equivalent and make informed investment choices. Category: Client Service