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Suppose the function U(y) is a von Neumann- Morgenstern utility Function and satisfies the expected utility property with y R+. Consider the replacement utility function

Suppose the function U(y) is a von Neumann- Morgenstern utility Function and satisfies the expected utility property with y R+. Consider the replacement utility function given by

V (y) = a U(y) + b , a > 0

Show that the risk premium and certainty equivalent are the same for U(y) and

V (y) (3)

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