Suppose that Sally's utility function U is given by U = w^0.5, where w is wealth. Sally has a wealth of 20 but entertains the opportunity to travel around the world which would spend 10 of her wealth. The probability that she takes a year off and travels is 20%.

(a) Calculate Sally's expected value of wealth

(b) Calculate Sally's level of utility at the expected value of wealth. (c) Calculate Sally's expected utility

(d) Is Sally risk-averse?

(e) What is Sally's certainty equivalent?

(f) What is Sally's risk premium?