N1

1. Suppose that there is a 30% chance Clyde is injured and earns $50,000, and a 70% chance he is healthy and will earn $500,000. Suppose further that his utility function is the following (utility = square root of income) U= VIncome a) Clyde's utility if he earns $50,000 is and his utility if he earns $500,000 is: )50,000; 500,000 ii) 223.6; 707.1 iii) 100; 264.58 iiii) 707.1; 223.6 iiiii) 264.58; 100 b) Clyde's expected income is i) $275,000 ii) $365,000 iii) $500,000 iiii) $550,000 c) Clyde's utility from his expected income is - - -. _. Clyde's expected utility of income is i) 223.6; 707.1 ii) 562.1; 604.2 iii) 604.2; 562.1 iiii) 707.1; 223.5 d) Clyde is risk --_. He will prefer i) averse; no insurance to actuarially unfair and full insurance ii) lover; actuarially unfair and full insurance to no insurance ifi) averse; actuarially unfair and full insurance to no insurance iiii) lover; no insurance to actuarially unfair and full insurance