Question: Assume an individual that has a logarithmic utility function and a level of wealth of $100,000. This individual is faced with two gambles. The first

Assume an individual that has a logarithmic utility function and a level of wealth of $100,000. This individual is faced with two gambles. The first gamble is an 80% chance of losing $20,000 and a 20% chance of losing $60,000. The second gamble is a 50/50 chance of gaining/losing $200. First, for each gamble calculate the Markowitz risk premium. Second, for each gamble calculate the Pratt-Arrow measure of risk premium. Finally, explain what these numbers mean and why they might differ.

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