. Suppose an individual has wealth of $250,000 and utility function U(W)= W -5. (3 points)...

  

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. Suppose an individual has wealth of $250,000 and utility function U(W)= W -5. (3 points) Note: The inverse function of U(W) W is W-U2. But the inverse function of U(W)-W-5 is not exactly W=U. Figure it out. (a) If there is a probability of 0.25 that this person will be robbed and therefore, incur a $40,000 loss, what is the maximum amount this person would be willing to pay for insurance to cover the full loss? (Round all calculations to two decimal places). (b) Does this person display a risk averse or risk loving behavior? (Simply answering risk averse or risk loving will not give you any points. You have to explain the reasoning to support your answer) . Suppose an individual has wealth of $250,000 and utility function U(W)= W -5. (3 points) Note: The inverse function of U(W) W is W-U2. But the inverse function of U(W)-W-5 is not exactly W=U. Figure it out. (a) If there is a probability of 0.25 that this person will be robbed and therefore, incur a $40,000 loss, what is the maximum amount this person would be willing to pay for insurance to cover the full loss? (Round all calculations to two decimal places). (b) Does this person display a risk averse or risk loving behavior? (Simply answering risk averse or risk loving will not give you any points. You have to explain the reasoning to support your answer)