Question: Please help with first 5 7. Assume one individual has the utility function expressed by U(W)=InW; her current wealth Wo = $120; she faces a

Please help with first 5

7. Assume one individual has the utility function expressed by U(W)=InW; her current wealth Wo = $120; she faces a potential loss L. L can be either $20 (with the probability of 20%) and $100 (with the probability of 20%). a) Is she a risk-averse person? b) What is her Arrow-Pratt measure of absolute risk aversion? Does she have CRRA? What is the actuarially fair insurance price, if she is going to purchase an insurance policy that fully covers the loss? d) What is her expected value of final wealth? e) What is the expected utility of final wealth if she does not purchase insurance? What is her certainty equivalent wealth? What is the maximum premium of insurance she is willing to pay to fully cover the loss

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