A tourist traveling with $ 10,000 in cash. At the hotel, he is informed that he has a one in two chance of being robbed during the night. The hotel has a safe, which costs $ 2000. Hence the tourist is facing the following gamble, = ($10,000, 0$; 0.5, 0.5) or ending up with a net worth of $8000 with certainty. Assume that the tourists utility function is U(W) = W1/4 What is the risk premium associated with the gamble?

a.$50

b.$5,000

c.$0

d.$2,500

e.$4,375

Consider an economy with two types of firms, S and I. S firms always move together, but I firms move independently of each other. For both types of firms there is a 70% probability that the firm will have a 20% return and a 30% probability that the firm will have a -30% return. The standard deviation for the return on an individual firm is closest to:

Question 10 options:

a.5.25%

b.10.0%

c.23.0%

d.15.0%