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please answer the whole question. thank you 5. Suppose a person's utility function is concave with respect to wealth and can be summarized as Utility
please answer the whole question. thank you
5. Suppose a person's utility function is concave with respect to wealth and can be summarized as Utility = ln (wealth). If a person's wealth at the end of the year will either be $1 mil if the stock market goes up, or $ 100,000 if the stock market's return is zero, with each scenario equally likely, a) What is the person's utility from the expected value of the outcomes? b) What is the person's expected utility of the outcomes? Is (b) higher or lower than (a) and why? c) Calculate the certainty equivalent income. d) Calculate the risk premium. 5. Suppose a person's utility function is concave with respect to wealth and can be summarized as Utility = ln (wealth). If a person's wealth at the end of the year will either be $1 mil if the stock market goes up, or $ 100,000 if the stock market's return is zero, with each scenario equally likely, a) What is the person's utility from the expected value of the outcomes? b) What is the person's expected utility of the outcomes? Is (b) higher or lower than (a) and why? c) Calculate the certainty equivalent income. d) Calculate the risk premiumStep by Step Solution
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