3. An individual has a vNM utility function over money of u(z) = vr, where x is final wealth. Assume the individual currently has $16. He is offered a lottery with three possible outcomes; he could gain an extra $9, lose $7, or not lose or gain anything. There is a 15% probability that he will win the extra $9. What probability, p, of losing $7 would make the individual indifferent between to play and to not play the lottery? (a) p = 0.15 (b) p = 1.08 (c) p = 0.415 (d) p = 0.05 (e) None of the above 4. Johnny owns a house that is worth $100,000. There is a 0.1% chance that the house will be completely destroyed by fire, leaving Johnny with 50. Johnny's utility function is u(r) = vr, where x represents final wealth. Assuming that Johnny has no other wealth, what's the maximum amount that he would be willing to pay for an insurance policy that completely replaces his house if destroyed by fire? (a) $315.91 (b) $225.21 (c) $199.90 (d) $123.41