Question: Consider an individual with log-utility, u (c) = ln c. What is her certainty equivalent and consumption risk premium for the consumption plan which with

Consider an individual with log-utility, u

(c) = ln

c. What is her certainty equivalent and consumption risk premium for the consumption plan which with probability 0.5 gives her (1 − α)c¯ and with probability 0.5 gives her(1 + α)c¯? Confirm that your results are consistent with the numbers for γ = 1 shown in Table 5.5.

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Where did you get. 3% margin from?

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