Consider a risk-averse individual with a utility of wealth function U(w) = w³ and initial wealth w = $7 faced with a risky investment. The asset has interest rate r = 10%. A capital gain g will result in an increase in the asset's value by 60% while a capital loss I will result in a loss of 30% of the asset's value.

The probability at of a capital gain is 65% and the probability 1 - π of a capital loss is 35%.

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4. From the expected utility of the gamble, calculate the certainty equivalence CE of the gamble 5. From the calculated utility of the expected gamble U(EG) and expected utility of the gamble EU(G), would this risk-averse individual take the gamble? 6. Using the certainty equivalence CE and expected gamble EG, calculate the risk premium RP of the gamble for this individual. What does this risk premium tell you about risk- averse individuals? 4. From the expected utility of the gamble, calculate the certainty equivalence CE of the gamble 5. From the calculated utility of the expected gamble U(EG) and expected utility of the gamble EU(G), would this risk-averse individual take the gamble? 6. Using the certainty equivalence CE and expected gamble EG, calculate the risk premium RP of the gamble for this individual. What does this risk premium tell you about risk- averse individuals?