Pls help with this homework. Question 10James has an opportunity to buy shares in a start-up company. The shares have a 0.5 chanceof being worth 10 and a 0.5 chance of being worth 70 in one year. His utility function isillustrated in the diagram.AWealth)LAS70) - 1400.1 USI0) + 0.9LAST0) - 133LAS40) - 1200.SUSI0) + 0.5USTO) =LAS26) - 105LKS10) = 706470 Wealth, S1026Risk premium40Which of the following statements is true?O The risk premium shows that James would buy at any price below 40.O The risk premium shows that James would have negative expected utility if he buys the stock at aprice of 40.O At a price of 28 James would be risk neutralO No other answer given here is correct.n an 9

The risk premium shows that James would buy at any price below 26. If James buys the stock at a…

Question 10 James has an opportunity to buy shares in a start-up company. The shares have a 0.5 chance of being worth 10 and a 0.5 chance of being worth 70 in one year. His utility function is illustrated in the diagram. LAWealth) LAST0) - 140 0.1ASIO)+ 0.BLAST0)- 133 LS40) - 120 0.SUSIO) - 0.SASTO)- LAS26)- 105 LASI0)= 70 10 64 70 Wealtn, $ 26 40 Risk premium Which of the following statements is true? O The risk premium shows that James would buy at any price below 40. O The risk premium shows that James would have negative expected utility if he buys the stock at a price of 40. O At a price of 28 James would be risk neutral O No other answer given here is correct.

Question 10 James has an opportunity to buy shares in a start-up company. The shares have a 0.5 chance of being worth 10 and a 0.5 chance of being worth 70 in one year. His utility function is illustrated in the diagram. LAWealth) LAST0) - 140 0.1ASIO)+ 0.BLAST0)- 133 LS40) - 120 0.SUSIO) - 0.SASTO)- LAS26)- 105 LASI0)= 70 10 64 70 Wealtn, $ 26 40 Risk premium Which of the following statements is true? O The risk premium shows that James would buy at any price below 40. O The risk premium shows that James would have negative expected utility if he buys the stock at a price of 40. O At a price of 28 James would be risk neutral O No other answer given here is correct.

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter7: Uncertainty

Section: Chapter Questions

Problem 7.7P

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