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QUESTION 4 Mrs. Obaatanpa has a wealth of GhC 3,500 for one year. There is a 35% probability that she will get sick and she
QUESTION 4 Mrs. Obaatanpa has a wealth of GhC 3,500 for one year. There is a 35% probability that she will get sick and she estimates her loss from the illness to be GhC 1,600. Her utility function is given as U(Y) = VY, where Y is the amount of wealth she has. a) Comment on her utility function. Is she risk-neutral? Estimate the risk that she faces and explain. c) What is her expected utility? d) Suppose that she can buy an insurance policy that will cover the entire loss, what is the maximum premium she would be willing to pay
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