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Consider an expected-utility-maximizer, with a Von Neumann-Morgenstern(VMN) utility function given by; u ( w ) = 2 1 w 2 1 50 . This individual

Consider an expected-utility-maximizer, with a Von Neumann-Morgenstern(VMN) utility function given by; u(w)=21w2150 . This individual has an initial wealth of 40000.

Given a potential loss of 17500 with a 20% chance, what would be the maximum that this economic agent is willing to pay for full insurance coverage? [25 marks]

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