3. Suppose Chelsea has the following utility function over sure wealth:v (y) = In y(a) Consider the lottery that yields the outcome $2 with probability and the outcome $8with probability . What is Chelsea's certainty equivalent for this lottery?23*(b) For the lottery in (b), how much would Chelsea pay to have her risk taken away?(c) What is Chelsea's probability premium at $25 for a lottery that could swing her wealth$20 up or down? What about $15 up or down?

the expected amount won from the lottery is calculated as E(Win amount) = (1/3) x 2 + (2/3) x 8…

3. Suppose Chelsea has the following utility function over sure wealth: v (y) = In y (a) Consider the lottery that yields the outcome $2 with probability and the outcome $8 with probability . What is Chelsea's certainty equivalent for this lottery? (b) For the lottery in (b), how much would Chelsea pay to have her risk taken away? (c) What is Chelsea's probability premium at $25 for a lottery that could swing her wealth $20 up or down? What about $15 up or down?

3. Suppose Chelsea has the following utility function over sure wealth: v (y) = In y (a) Consider the lottery that yields the outcome $2 with probability and the outcome $8 with probability . What is Chelsea's certainty equivalent for this lottery? (b) For the lottery in (b), how much would Chelsea pay to have her risk taken away? (c) What is Chelsea's probability premium at $25 for a lottery that could swing her wealth $20 up or down? What about $15 up or down?

College Algebra

7th Edition

ISBN:9781305115545

Author:James Stewart, Lothar Redlin, Saleem Watson

Publisher:James Stewart, Lothar Redlin, Saleem Watson

Chapter9: Counting And Probability

Section9.3: Binomial Probability

Problem 2E: If a binomial experiment has probability p success, then the probability of failure is...

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