Question: Consider the power utility function given by U(x) = ( x 0.25 - 1)/0.25: Determine the risk premiums for the following lotteries: A 50/50 gamble

Consider the power utility function given by U(x) = (x0.25- 1)/0.25:

  1. Determine the risk premiums for the following lotteries:

A 50/50 gamble between $10K and $20K

A 50/50 gamble between $20K and $30K

A 50/50 gamble between $30K and $40K

  1. What do your answers in part (a) imply about how the risk attitude represented by this utility function varies with the level of wealth, x? How about risk attitude as a fraction of wealth?

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