V3

Question 01 Adam, Brian, Chris are friends whose preferences over wealth, W, can be represented by the utility functions: U^(W) = W2.UB(W) = 2W, and UC(W) - VW. All three friends are offered the same lottery, L, in which they can get wither $36 or $16. The probability of getting the highest value is 20%. Consider the expected value, E(L), and the variance, Var(L), of lottery L.Question 03 Consider the same information in question 01. Compute each friend's Certainty Equivalent, CE, and risk premium, p. Which of the following alternatives is correct? (a) For Adam: CE = $19.36 and p = $0.64 (b) For Brian: CE = $40.00 and p = $0 (c) For Brian: CE = $20.00 and p = $0 (d) For Chris: CE = $21.54 and p = -$1.54