Question: Please help me answer this question. 3. The gure below shows Sam's utility function (the curved blue line). He currently has $500 of wealth, but

Please help me answer this question.

3. The gure below shows Sam's utility function (the curved blue line). He currently has $500 of wealth, but there is a 25% chance that it could all be stolen. wealth 0 250 375 500 (a) What is Sam's expected utility and expected wealth? (b) Is Sam risk averse, risk neutral or risk loving? Explain. (c) What is the risk premium Sam would pay to eliminate the chance of theft? [Aside: for those of you familiar with the idea of fair insurance, this risk premium is what Sam would pay over and above the price of fair insurance]

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