This problem uses a utility function of the form u 1 ndash, Ask an Expert

Economics

This problem uses a utility function of the form U = 1 – exp(-0.002 X Income) where exp(z) means “ez”. The problem analyzes a gamble in which Income = 1,000 with probability 0.4 and Income = 3,000 with probability of 0.6. a) Calculate the expected income and variance. b) Calculate the expected utility. c) Calculate the certainty equivalent income, Ic, which is the level of income generates the expected utility. d) Calculate the risk premium, which is defined as the difference between expected income and Ic. e) Calculate the approximate risk premium by using the formulae, risk premium = -0.5 * r * variance. Is it different from what we get in the last step?

View complete question

Business Economics, Economics

Category:- Business Economics
Reference No.:- M91695880

Have any Question?Write your Review or question?

Related Questions in Business Economics

Here is some questions need help how will each of the

Here is some questions need help!!!!!! How will each of the following changes in demand and/or supply affect equilibrium price and equilibrium quantity in the given market; that is, do price and quantity increase or decr ...

Suppose a bond with no expiration date has a face value of

Suppose a bond with no expiration date has a face value of $10,000 and annually pays a fixed amount of interest of $900. a. In the table provided below, calculate and enter either the interest rate that the bond would yi ...

Discuss three specific advantages and disadvantages

Discuss three specific advantages and disadvantages regarding the division of labor?

An article describes a study that appeared in the journal

An article describes a study that appeared in the journal Pediatrics. In this study, researchers looked at records of 2500 children who were participating in a long term health study. They found that 10% of these childre ...

With most of the worlds nations either having moved to

With most of the world's nations either having moved to market economies, does the nationalization of foreign industries and property have its place?

If the market for a good is operating in the inelastic

If the market for a good is operating in the inelastic range of market demand. Which of the two policy that follow is more effective when handling (technical) externalities: Cap-and-trade or emissions fee?

John plans to take three suits on his business trip if john

John plans to take three suits on his business trip. If John owns 8 suits, how many ways can the 3 suits be selected?

A video movie store owner finds that 30 of the customers

A video movie store owner finds that 30% of the customers entering the store ask an assistant for help and that 20% of the customers make a purchase before leaving. It is also found that 15% of all customers both ask for ...

Suppose that a b and c are events in a sample space s such

Suppose that A, B and C are events in a sample space S, such that: • A and B are equally likely; • C is four times as likely as B; • B and C are independent; • if either B or C occurs, then A cannot occur; • at least one ...

Briefly explain the meaning of the t-test for regression

Briefly explain the meaning of the t-test for regression analysis. How can the "rule of two" be used to evaluate t-ratios?

4,153,160 Questions Asked
13,132 Experts
2,558,936 Questions Answered

Ask Experts for help!!

Looking for Assignment Help?

Start excelling in your Courses, Get help with Assignment

Write us your full requirement for evaluation and you will receive response within 20 minutes turnaround time.

Ask Now Help with Problems, Get a Best Answer

Recent Questions

Ask Business Economics Expert