In attempting to quantify its attitude toward risk, top management of the pharmaceutical company has reported certainty equivalent values for a variety of 50-50 risks. These are summarized in the following table.

For instance, the company's CE for a 50-50 risk between $200 million and $0 is $50 million, and so on.

a. Use these responses to determine utility values for each of the monetary values in the second column. (Hint: Set U($200) = 100 and U($0) 0.

Show that U($50) 50, U($112) 75, and so on.) Construct a utility graph by plotting points and drawing a smooth curve. (You may wish to check the utility values in Problem 11 against your curve.)

b. Consider the mathematical utility function U 7.1 Vy, where U is the utility value corresponding to monetary outcome y. Check that this function is an accurate description of the pharmaceutical company's attitude toward risk. Is the company very risk averse?