What is your certainty equivalent wealth for this gamble

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Question: If you are exposed to a 50/50 probability of gaining or losing CHF 1'000 and an insurance that removes the risk costs CHF 500, at what level of wealth will you be indifferent between taking the gamble or paying the insurance? That is, what is your certainty equivalent wealth for this gamble? Assume that your utility function is U(Y) = -1/Y. What would the solution be if the utility function were logarithmic?

Reference no: EM133367486

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