Question
Dipo derives utility from income/wealth as given by the function: U (W) = ln(W): Answer the following: A.Prove that this function implies that Dipo's measure
Dipoderives utility from income/wealth as given by the function: U (W) = ln(W): Answer the following:
A.Prove that this function implies that Dipo'smeasure of relative risk aversion is constant. What is it equal to?
B.Dipo's current wealth is $5,000, but he is faced with 40% of the chance of losing 20% of his wealth. What is the maximum amount of insurance premium Dipo is willing to pay to avoid such risk?
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Principles of Economics
Authors: N. Gregory Mankiw
8th edition
1305585127, 978-1305971493, 978-1337516860, 1337516864, 978-0357539200, 978-1305585126
