Compute the certainty equivalent and the risk premium

Assignment Help Business Economics

Reference no: EM131002993

As in the previous exercise, consider an initial wealth of 10 and the lottery X˜ . Assume now that the utility is: u = w for w <= 10, 1/2 w + 5 for w >= 10.

(a) Draw the utility function. Is it globally concave?

(b) Compute the certainty equivalent and the risk premium attached to X˜ .

Reference no: EM131002993

Questions Cloud

Specify what is the exchange-rate system : Please specify what is the exchange-rate system of Brazil? Describe briefly the advantages and disadvantages of the specific exchange-rate system. Do you think the world will move toward an international monetary system more characteristic of floatin..

How much can the bank loan out or what is the excess reserve : What would the excess reserve be for the problem below? Devry Bank has $44,000 in demand deposits and $15,000 on total reserve with a 10 percent (i.e. 0.1) reserve requirement. How much can the bank loan out or what is the excess reserve? What’s the ..

Tailgating hid and is able to control the demand for product : VTAARPS, Inc. currently sells a ‘Tailgating HID’ and is able to control the demand for the product by varying the selling price. The approximate relationship between price and demand is p = $ 38 + (2700/D) − (5000/D^2) for D > 1 where p is the price ..

Draw in difference curves : Which assumption(s) allow(s) us to draw in difference curves? A) the Assumptions are cardinal measurement and cardinal ranking B) The assumptions are rank ability and completeness C) The assumption is that the more we have of a good, the less we are ..

Compute the certainty equivalent and the risk premium : As in the previous exercise, consider an initial wealth of 10 and the lottery X˜ . Assume now that the utility is: u = w for w = 10. Draw the utility function. Is it globally concave? Compute the certainty equivalent and the risk premium attached t..

Explain why person starting up small business probably stand : Explain why a person starting up a small business probably stands a better chance of raising money by applying for a bank loan than by issuing bonds. Banks now control only about half as much of the total financial intermediary assets as they did abo..

Why person starting up a small business probably stands : Explain why a person starting up a small business probably stands a better chance of raising money by applying for a bank loan than by issuing bonds. Banks now control only about half as much of the total financial intermediary assets as they did abo..

What have you observed about bargaining situations : Bargaining can be viewed strategically, as a game of chicken where the ability to commit to a position allows a player to capture the lion’s share of the gains from trade. Do you agree with this concept? What have you observed about bargaining situat..

Emerged regarding the aggregate supply curve : In economics two schools of thoughts have emerged regarding the aggregate supply curve. The Keynesian paradigm suggests that the Short Run AS better describes production in the economy (prices are generally sticky) while the classical school defends ..

User Account

All Pages