What is the risk premium if, in Question 2.7, Laura's utility function were (ln W) ? Data
Question:
What is the risk premium if, in Question 2.7, Laura's utility function were \(\ln W\) ?
Data From Question 2.7:-
Suppose that Laura has a utility function of \(U(W)=W^{0.5}\) and an initial wealth of \(W=\$ 100\). How much of a risk premium would she want to participate in a gamble that has a \(50 \%\) probability of raising her wealth to \(\$ 120\) and a \(50 \%\) probability of lowering her wealth to \(\$ 80\) ?
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Expected Utility of Current Wealth W 100 UW ln W U100 ln 100 4605 Expected Utility of the G...View the full answer
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