Question: An agent faces a risky situation in which he can lose some amount of money with probabilities given in the following table: U (Y)

An agent faces a risky situation in which he can lose some amount of money with probabilities given in the following table: U (Y) = LOSS 1000 This agent has a utility function of wealth of the form y1-8 1-8 +2 2000 3000 5000 6000 His initial wealth level is 10,000 and his 8 is equal to 1.2. FEFFE! Probability 10% 20% 35% 20% 15% a) Calculate the certainty equivalent of this prospect for this agent. b) Calculate the insurance risk premium. c) What would be the certainty equivalent of this agent if he would be risk neutral?

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