2. (a) Suppose that in a company, the manager has the utility function u1(x) = 10 + (In(x + 10000) 1)2 , where x is the gain received. The chairman has another utility function u2(x) = 160 50 * exp (1 = where x is the gain received. The 10000 company is offered the following lotteries: Li A {(0.7, -3000), (0.3, 10000)} L2 {(0.3, 1000), (0.5, 5000), (0.2, 10000)} i. Comment on the risk attitude of the manager and the chairman. (3 marks) ii. How would the manager rank the two lotteries? (3 marks) 111. If the company owns these two lotteries, how much the chairman is willing to sell Li and L2? (5 marks) iv. In the company, the manager will usually make the decision. However, if the gain is more than $6000, the chairman will make the decision. Write down the overall utility function and find the risk premium of L2. (6 marks) 2. (a) Suppose that in a company, the manager has the utility function u1(x) = 10 + (In(x + 10000) 1)2 , where x is the gain received. The chairman has another utility function u2(x) = 160 50 * exp (1 = where x is the gain received. The 10000 company is offered the following lotteries: Li A {(0.7, -3000), (0.3, 10000)} L2 {(0.3, 1000), (0.5, 5000), (0.2, 10000)} i. Comment on the risk attitude of the manager and the chairman. (3 marks) ii. How would the manager rank the two lotteries? (3 marks) 111. If the company owns these two lotteries, how much the chairman is willing to sell Li and L2? (5 marks) iv. In the company, the manager will usually make the decision. However, if the gain is more than $6000, the chairman will make the decision. Write down the overall utility function and find the risk premium of L2. (6 marks)