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Problem 2 Jaime owns a very cute house. It is worth 160 (thousand) dollars. The house is located in a beautiful area, but unfortunately there are frequent forest res. There is 50% chance that his house will burn down. If his house burns down, it losses 75% of its initial value. Jaime is an expected utility maximizer. His utility function is given by n(c) = , where c denotes his wealth. Denote by (c1, 02) Jaime's state-contingent consumption bundle, where c1 is the amount of wealth in bad state and c2 is the amount of wealth in good state (i.e., no forest re). Jaime may purchase K (thousand) dollars of insurance from an insurance company. The insur- ance contracts costs 7K dollars, where 'y E [0, 1]. It is known that on the average the insurance company just breaks even on the contract. 1. Determine Jaime's risk attitude. Draw his utility function in a diagram. 2. Determine Jaime's contingent wealth for the case without insurance. 3. Determine Jaime's contingent wealth for the case where he buys an insurance contract