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Lila has a monthly income of $160,000. Unfortunately, there is a chance that she will have an accident resulting in a loss of $94,464. Thus,
Lila has a monthly income of $160,000. Unfortunately, there is a chance that she will have an accident resulting in a loss of $94,464. Thus, leaving her an income of only $65,536. Lila is a low-risk individual and the probability of her having an accident is p = 0.25. Finally, assume that her preferences over income can be represented by the utility function u(x) = ln (x). a) What is the expected income? What is Lila's expected utility (in log form)? b) What is the certainty equivalent to her situation? c) What is the risk premium associated with her situation
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