Problem 2 (25 points) Consider an individual with utility function u(w) = - exp( -A . w), A > 0, and initial wealth Wo. The individual is facing a 50-50 chance of winning or losing 1000 euros. 1. How much would she pay to avoid the risk? Call this amount of money P (risk premium) and express it as a function of A. 2. Does P depend on Wo, the initial wealth of the individual? Explain. Hint: you may find it useful to compute the coefficient of absolute risk aversion for u(w) = - exp(-A . w). 3. Compute P for A = 0.0001 and A = 0.0003. More generally, how do changes in A affect P? Discuss the economic intuition