Question: An individual's preferences over his current wealth, @ > 0, is represented by a Bernoullian utility function u(@) = In w. The individual faces a

An individual's preferences over his current wealth, @ > 0, is represented by a Bernoullian utility function u(@) = In w. The individual faces a risk that would reduce his wealth by an amount B, where a > B >0. a) Determine the risk preferences of this individual. Briefly define the type of these preferences. (2 marks) b) Calculate the full-coverage, lump-sum fee ($/) of a fair lottery for this risk. (3 marks) c) Calculate the Certainty Equivalent (@") of the individual for this lottery. (5 marks) d) Calculate the risk premium (p) of this individual for this risk.

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