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1. Johnathan's utility for money is given by the exponential function: U(X)=4-4(x/1000). a. Based on his utility function, what is his risk-odds for the S+/-1 deal, r($1)? b. Is Johnathan a deltaperson? Explain. c. Is he risk-neutral? Explain. d. What is his risk-odds for the $+/-100 deal, r($100)? e. What is his risk-aversion coefficient? 2. Wendy adheres to the delta property and has risk odds of 3:1 for a deal where she could win or lose $100. a. What is her preference probability, p, for $0 when the best and worst prospects are winning and losing $100? b. What is her risk-odds for a deal where she could win or lose $200, r(200)? Interpret it. 3. Suppose U(X)=15+X. Hint: See the Risk Graph notes posted in Moodle a. Graph this utility function b. Suppose you have a binary lottery with a 40% chance of $0 and a 60% chance of $100. Draw the probability tree of this lottery. c. Show the lottery in Part B on your graph from Part A. You need to show: U(0), U(100), EV, U(EV), EU, U(CE) and the CE. Be sure to label everything clearly. **If the TA cannot read your graph, you cannot get points* * d. What can you say about the CE and EV for this lottery? Why? 4. Suppose U(x)=x0.5 Hint: See the Risk Graph notes posted in Moodle a. Graph this utility function. b. Suppose you have a binary lottery with a 40% chance of $25 and a 60% chance of $100. Draw the probability tree of this lottery. c. Show the lottery in Part B on your graph from Part A. You need to show: U(25), U(100), EV, U(EV), EU, U(CE) and the CE. Be sure to label everything clearly. **If the TA cannot read your graph, you cannot get points** d. What can you say about the CE and EV for this lottery? Why?5. Consider the following situation: 0.3 $75 0.2 $60 A 0.5 -$30 $20 Assume U(X) = 4-4 x/1000 a. What is the preferred alternative, A or B? b. Assume this decision maker is a deltaperson. Her uncle offers to give her an additional amount $10 (added to each payoff of deal A). What is her preferred alternative, A or B?|