What is the expected value of the lottery ticket

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Reference no: EM13896984

Suppose Ann’s utility function is defined as: u(c) = ln(c) . For her birthday, Ann’s father offers her the choice of either a lottery ticket that is worth $1 with probability .99 and worth $100,000 with probability .01 or $500 cash.

a. What is the expected value of the lottery ticket?

b. What is Ann's expected utility if she chooses the lottery ticket?

c. What does Ann choose?

d. Is Ann risk averse?

Reference no: EM13896984

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