Question
I a) A retired person's income comes from earnings on her savings of 200,000. The table below shows how she values different levels of
I a) A retired person's income comes from earnings on her savings of 200,000. The table below shows how she values different levels of income. < Income 5,000 10,000 15,000 20,000 25,000 30,000 Total Utility 12 22 30 360 40 42 (i) Describe, using first and second derivatives, her attitude toward risk? Briefly explain. < (ii) (10 marks) < She is currently earning 10% on her 200,000 in a risk free investment. She has the choice of investing in a project that has a 40% probability of yielding a return of 30,000 return on her investment and a 60% probability of yielding $10,000 return on her investment. Will she be better off if she moved her 200,000 to the risky project? Explain. < (10 marks)
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