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Problem 4. Carol's risk preference is represented by the following expected utility formula: U(1,1; 1 - 1,02) = TVC + (1 - 1) 72. Bob's
Problem 4. Carol's risk preference is represented by the following expected utility formula: U(1,1; 1 - 1,02) = TVC + (1 - 1) 72. Bob's risk preference is represented by the following expected utility formula: U(1,4; 1 1,02) = *(C) 0.8 + (1 - 1) (3)0.8. Consider the following three lotteries: L1 = (0.8, $100;0.2, $25), L, (0.6.$100; 0.4, $25). and L3 = (0.5, $225;0.5, $0). In other words, Job X pays at t = 0.1,..., 45 and Job Y pays at 1 = 0,1,..., 35. 1 i) What is the ranking of these lotteries for Carol? Calculate the risk premiums of these lotteries for Carol. ii) What is the ranking of these lotteries for Bob? Calculate the risk premiums of these lotteries for Bob
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