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HHey, can you please help me with this exercise
[ Problems 3 to 4 ] A person faces a loss that may or may not occur. Some facts: - She has $10,000 in wealth but no other assets. - She faces the risk of a loss of $3,600. - This loss will occur with probability 0.3. - She has expected utility preferences, where her utility depends on the square-root of final money wealth (after she has paid a premium to the insurer if she buys insurance, after she has suffered any loss, and after she has received any payment from the insurer): u=W. Problem 3. Please draw a large diagram that shows a utility function of a person. The diagram should plot wealth on the x-axis and utility on the y-axis. On the diagram, please draw and label items (i) through (vii) below and label with appropriate dollar values and utility levels when possible. Stuff to label on your diagram: (i) the point representing initial wealth. (ii) the point representing wealth when loss occurs. (iii) the point representing expected wealth. (iv) the point representing expected utility. Problem 4. Answer the following questions regarding decision making under uncertainty. (i) Calculate the certainty equivalent. (ii) Calculate the risk premium. (iii) Assuming the utility function of this individual has now changed to u=W2, what will the sign (+/) of her risk premium be? Briefly explain the answer with respect to her risk preference. [ Problems 3 to 4 ] A person faces a loss that may or may not occur. Some facts: - She has $10,000 in wealth but no other assets. - She faces the risk of a loss of $3,600. - This loss will occur with probability 0.3. - She has expected utility preferences, where her utility depends on the square-root of final money wealth (after she has paid a premium to the insurer if she buys insurance, after she has suffered any loss, and after she has received any payment from the insurer): u=W. Problem 3. Please draw a large diagram that shows a utility function of a person. The diagram should plot wealth on the x-axis and utility on the y-axis. On the diagram, please draw and label items (i) through (vii) below and label with appropriate dollar values and utility levels when possible. Stuff to label on your diagram: (i) the point representing initial wealth. (ii) the point representing wealth when loss occurs. (iii) the point representing expected wealth. (iv) the point representing expected utility. Problem 4. Answer the following questions regarding decision making under uncertainty. (i) Calculate the certainty equivalent. (ii) Calculate the risk premium. (iii) Assuming the utility function of this individual has now changed to u=W2, what will the sign (+/) of her risk premium be? Briefly explain the answer with respect to her risk preference
