Question: 7. Assume one individual has the utility function expressed by U(W)=lnW; her current wealth W0 = $120; she faces a potential loss L. L can

7. Assume one individual has the utility function expressed by U(W)=lnW; her current wealth W0 = $120; she faces a potential loss L. L can be either $20 (with the probability of 20%) and $100 (with the probability of 20%).

What is the expected utility of final wealth if she does not purchase insurance?

What is her certainty equivalent wealth?

What is the maximum premium of insurance she is willing to pay to fully cover the loss?

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