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Exercise: (Insurance premium) An investor can be described by a logarithmic utility function [U(W) = ln(W)]. He has an initial wealth of about 100.000. He

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Exercise: (Insurance premium) An investor can be described by a logarithmic utility function [U(W) = ln(W)]. He has an initial wealth of about 100.000. He has to bear a risk: with 50% probability he will win or lose 10.000. An insurance company offers insurance for 500. Should the investor accept the insurance? Calculate the risk premium and the certainty equivalent

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