Problem 2) Suppose my utility function for asset position is given by u(x)=In(x). a) Am I risk-averse, risk-neutral, or risk-taker? Justify your answer. b) I have $25,000, and am considering the following two lotteries • L;: with probability 1, I lose $5,000 • L2: with probability 0.7, I gain $0 and with probability 0.3, I lose $10,000. Based on my utility, determine which lottery I prefer. Justify your answer. c) Find risk premium of lottery L2

Problem 2) Suppose my utility function for asset position is given by u(x)=In(x). a) Am I risk-averse, risk-neutral, or risk-taker? Justify your answer. b) I have $25,000, and am considering the following two lotteries • L;: with probability 1, I lose $5,000 • L2: with probability 0.7, I gain $0 and with probability 0.3, I lose $10,000. Based on my utility, determine which lottery I prefer. Justify your answer. c) Find risk premium of lottery L2

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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