Question: A tourist traveling with $10,000 in cash. At the hotel, he is informed that he has a one in two chance of being robbed during

A tourist traveling with $10,000 in cash. At the hotel, he is informed that he has a one in two chance of being robbed during the night. The hotel has a safe, which costs $ 4000. Hence the tourist is facing the following gamble = ($10,000, 0$; 0.5, 0.5) or ending up with a net worth of $6000 with certainty. Assume that the tourist's utility function is U(W) = W^(1/4)

What is the risk preference of the tourist?

A. Can't be determined

B. Risk averse

C. Risk loving

D. Risk neutral

What is the risk premium associated with the gamble?

A. $50

B. $0

C. $2,500

D. $5,000

E. $4,375

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