Kayla is an equity utility maximizer with a utility function u(x)=x x is raised to the power 0.5 please ! . We assume that she has no initial wealth .

1. Explain in short what you can learn about her risk attitude from the shape of Kaylas utility function . (2points)

2.Determine Kaylas certainty equivalent and risk premium for lottery pays 100 per its a probability of 80% and 0 otherwise . (6points)

3.) Paul is a u- decision maker and she has no initial wealth ,too .he uses the following very primitive u- evaluation function :

Valuation (lottery) = u(lottery ) -(lottery)

By company certainty equivalents, argue whether Kayla or Paul is more risk averse with respect to lottery A. Tip: to calculate the CE of Paul calculate the 2 ( 2 stands for raised to the power 2 please ) of the lottery A . (10points )

1. lottery B pays 120 or 40 with 50% probability each . Does Paul prefer lottery A or B ? ( 3points)