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Category > Economics Posted 03 May 2017 My Price 7.00

Lynn has a utility function

Q. (16 points) Lynn has a utility function U(W) = W1/2, where W is the amount of wealth that she has. Lynn has two assets. She has $90,000 in a bank account, and she has a house worth $270,000, so her total wealth is initially $360,000. There is a 10% chance that her house is destroyed by a fire.

 

a) Considering the probability that there is a fire, what is Lynnâs Expected Wealth, E(W)?

b) What is Lynnâs Expected Utility, E(U)?

c) What is Lynnâs Certainty Equivalent?

d) How much would Lynn be willing to pay for fire insurance?

Answers

SuperTutor
(15)
Status NEW Posted 03 May 2017 08:05 AM My Price 7.00

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