You have a utility function given by U(W) Ln(W), where W stands for wealth and Ln function represents the natural Logarithm Assume your current wealth is $2,000 You are exposed to a gamble with 60 chances of gaining $700 and 40 of losing $300 Determine your Markowitz Risk Premium If you can buy insurance that completely removes the risk for a fee of $60, will you buy it or take the gamble Suppose you take the gamble and lose If you have the same offer of the insurance, will you buy it Compute your absolute risk aversion at your current initial wealth ($2,000) Determine the Arrow Pratt risk premium at your current initial wealth ($2,000)

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Question: You have a utility function given by: U(W)=Ln(W), where W stands for wealth and Ln function represents the natural Logarithm. Assume your current wealth is

You have a utility function given by: U(W)=Ln(W), where W stands for wealth and Ln function represents the natural Logarithm. Assume your current wealth is $2,000. You are exposed to a gamble with 60% chances of gaining $700 and 40% of losing $300.

Determine your Markowitz Risk Premium.
If you can buy insurance that completely removes the risk for a fee of $60, will you buy it or take the gamble.
Suppose you take the gamble and lose. If you have the same offer of the insurance, will you buy it.
Compute your absolute risk aversion at your current initial wealth ($2,000).
Determine the Arrow-Pratt risk premium at your current initial wealth ($2,000).

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