Question: (ii) Adam is an expected utility maximizer whose preferences are described by U(Z) = VZ . His initial wealth is given by Z = R10

(ii) Adam is an expected utility maximizer whose preferences are described

(ii) Adam is an expected utility maximizer whose preferences are described by U(Z) = VZ . His initial wealth is given by Z = R10 000. He faces a risky situation in which he can lose given amounts of money with positive probabilities. His losses are summarized in Table 1 below. Table 1 Loss in South African Rands Probability 1000 0.4 3000 X 0.3 6090 0. 1 10000 0.05 Use the above information to answer questions (a) - (c). (a) Calculate the value of x [1] (b) Assume that Adam's certainty equivalent for the given risk equals 7000. Calculate the value of y, given his preferences. [6] (c) Calculate the risk premium. [2]

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