Phlebas the Phoenician is a sailor and a merchant. He is about to embark on a potentially lucrative trading voyage, but is concerned that his boat might be raided by pirates (he understands the chance of this happening to be 20%). If the trip is successful (i.e. no pirates), he will earn 100 silver coins. If pirates raid his boat, his trip will be worth nothing. Let's call his wealth/consumption in the "good" state X, and his consumption in the bad state "Y". 1. (5 points) Phlebas preferences can be described by the following Bernoulli utility function: V(Z) = 20.5, where Z is his consumption in whatever state of the world. Which of the following describes his expected utility function? B. U(Z) = 20.5 C. U(X,Y)= ln X + In Y D. U(X,Y)= Xos+Yos E. Not enough information. A. U(X,Y)= Xos+yos 2. (5 points) Is Phlebas risk averse, risk neutral, or risk loving? A. risk loving B. Not enough information. C. risk neutral D. risk averse 3. (5 points) Phlebas is considering buying insurance to protect against the risk of piracy. There is an insurance agent willing to provide insurance at a price of per unit of coverage (i.e. if Phlebas pays 1 silver coin as a premium, he will get 3 silver coins if his ship is raided by pirates). Use this information to generate Phlebas' budget constraint for this problem. D. X + Y A. X+Y 100 B. X + 2Y = 100 C. X + Y = 100 E. X+Y= 100 -100 4. (5 points) Using all the information so far, can you figure out how much Phlebas would be able to consume in each state of the world? A. X = 50, Y = 50 B. X= 100, Y=0 C. X = 88.88, Y = 22.22 D. X = 66.66, Y=33.33 E. X=0, Y = 100