uppose that an individual has an initial income of $100, may need to pay $36 for hospitalization with a probability of 0.5, and has the utility function, U=sqrt I , where I is the net income after the hospitalization fee.

a)Show that the risk premium is $1 [4 pts] (Tips: You may type sqrt( ) if you can't type the square root symbol.

b) Calculate the welfare gain from risk reduction if loading fee = 5%. [4 pts]