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Pernille has the following utility function over wealth levels wiol u(w)=ln(a+bw), where a,b>0. When she has to choose between lotteries above wealth levels, she chooses
Pernille has the following utility function over wealth levels wiol u(w)=ln(a+bw), where a,b>0. When she has to choose between lotteries above wealth levels, she chooses the lottery that gives her the highest expected benefit. a-) Is the utility function strictly concave and strictly growing? b-) at a wealth level w> 2000 Thomas gets an offer to place a bet. This bet implies that she with a probability of 25% wins 6000 and with a probability of 75% loses 2000 . Set up the lottery above wealth levels that Thomas faces if she enters the bet. If she chooses to place the bet? Justify your answer. c-) Thomas' fortune consists of shares which she has purchased for w> 0 . The value of the shares is uncertain. With a probability of 50%, the shares may lose half of their value, but otherwise their value will double. an investor offers to buy the shares. Set up an inequality that shows how much the price must be at least for Thomas to agree to sell his shares. Pernille has the following utility function over wealth levels wiol u(w)=ln(a+bw), where a,b>0. When she has to choose between lotteries above wealth levels, she chooses the lottery that gives her the highest expected benefit. a-) Is the utility function strictly concave and strictly growing? b-) at a wealth level w> 2000 Thomas gets an offer to place a bet. This bet implies that she with a probability of 25% wins 6000 and with a probability of 75% loses 2000 . Set up the lottery above wealth levels that Thomas faces if she enters the bet. If she chooses to place the bet? Justify your answer. c-) Thomas' fortune consists of shares which she has purchased for w> 0 . The value of the shares is uncertain. With a probability of 50%, the shares may lose half of their value, but otherwise their value will double. an investor offers to buy the shares. Set up an inequality that shows how much the price must be at least for Thomas to agree to sell his shares
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