Amanda has a utility function of, U = ln(Y)where Y is income. She has an investment...

 

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Amanda has a utility function of, U = ln(Y)where Y is income. She has an investment opportunity where there is 30% change of earning $10,000, a 20% chance of earning $30,000 and a 50% chance of earning $40,000. What is the risk premium Amanda is willing to pay to insure against the uncertain outcome? Amanda has a utility function of, U = ln(Y)where Y is income. She has an investment opportunity where there is 30% change of earning $10,000, a 20% chance of earning $30,000 and a 50% chance of earning $40,000. What is the risk premium Amanda is willing to pay to insure against the uncertain outcome?

Answer rating: 100% (QA)

We can find the expected utility of the investment opportunity and compare it to a certain income sc... View the full answer