Income inequality is an issue in American politics. For instance, http://www.youtube.com/watch?v=QPKKQnijnsM https://www.youtube.com/watch?v=1DU2IT8rl6c&feature=emb_title There may or may not be a "flawed" system and there are a host of normative questions surrounding this issue that are well beyond the scope of this course. However, it is useful to explore one manner that the "rich can become richer" that has nothing to do with a "flawed" system. Specifically, let us assume two individuals exist who are identical in regards to their preferences over risk. Specifically, each individual has a vNM utility over final wealth of () = ln() and each individual is making a decision concerning a risky stock portfolio. If an individual invests, with 70% probability the portfolio will increase their net wealth by $10,000. With 30% probability, the portfolio will decrease their net wealth by $20,000. The only difference between the two individuals is the amount of net wealth they currently possess: Individual 1: Currently has $20,000,000 (the approximate net worth of the top 1% of Americans) Individual 2: Currently has $60,000 (the approximate net wealth of the median American) How many of the following statements are true? Note: Do not round your answers in any of the intermediate steps. Individual 1 would purchase the risky asset, but Individual 2 would not. If offered the risky portfolio or a "safe" asset that returns $2600 with 100% probability, Individual 2 would prefer the safe asset and Individual 1 would prefer the risky portfolio. Individual 2 would be willing to pay more than $1700 more than Individual 1 to avoid the risk in the portfolio. Specifically, Individual 2's risk premium is more than $1700 more than Individual 1's risk premium. A. 1 B. 2 C. 3 D. None of the above statements is true.