Question: 1. Hazel Nutt is trying to decide whether or not to purchase health insurance. She knows that if she is healthy, her wealth will be

1. Hazel Nutt is trying to decide whether or not to purchase health insurance. She knows that if she is healthy, her wealth will be $320,000 this year. However, if she gets sick her wealth will only be $80,000. Hazel knows the probability of getting sick is 20%. Her utility function is written U(W) = sqrt(W/2) What is the most Hazel is willing to pay for full coverage insurance ?

2. A risk premium is the difference between what the risk-averse person is willing to pay and what a risk-neutral person is willing to pay. What is Hazel Nutt's risk premium?

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