Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

Please help me with this problem thank you very much!! . Show all calculations/result to FOUR PLACES AFTER THE DECIMAL POINT (except when all succeeding

Please help me with this problem thank you very much!!

image text in transcribed
. Show all calculations/result to FOUR PLACES AFTER THE DECIMAL POINT (except when all succeeding digits are zeros). Must Show all calculations/steps. Failure to do so will result in a score of "0" even final answer is correct. Geeta and Bred are very good friend, both of them are habitual gambler. They frequently gamble and most of the time they end up as a loser. One night both of them met with Zong and they discussed gambling and chance of winning or losing. Zong has knowledge of utility theory and, after the discussion he determines their individual preferences which can be modeled with the utility function Suppose Geeta and Bred is facing the following gamble where there is: 32 percent chances of winning $28490, 13 percent chances of winning $16478, 16 percent chances of winning or losing nothing, 14 percent chances of losing $7375, and 25 percent chances of winning $9350 (a) Zong determines the individual preferences of Geeta and modeled following utility function: U(x) = 3.395 - 2.62 e -x/36400 Calculate the overall expected utility of this gamble for Geeta and then find the certainty equivalent and the associated risk premium of this gamble for Geeta? ( b ) Zong determines the individual preferences of Bred and modeled following utility function: U(x) = 0.0568 * In (x + 11300) Calculate the overall expected utility of this gamble for Bred and then find the certainty equivalent and the associated risk premium of this gamble for Bred? State what type of risk behavior Bred is having? Why

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Computer Accounting

Authors: Donna Kay

15th Edition

0077826841, 9780077826840

More Books

Students also viewed these Accounting questions

Question

Explain the experimental method as used by clinical psychologists.

Answered: 1 week ago

Question

4. What means will you use to achieve these values?

Answered: 1 week ago