Determine which lottery i prefer and the risk premium

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Reference no: EM13839991

Suppose my utility function for asset position x is givenby u(x) ln x.

a. Am I risk-averse, risk-neutral, or risk-seeking?

b. I now have $20,000 and am considering the followingtwo lotteries:

L1: With probability 1, I lose $1,000.

L2: With probability .9, I gain $0.

L2: With probability .1, I lose $10,000.

Determine which lottery I prefer and the risk premium of L2.

Reference no: EM13839991

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