Solution-What probability p could make stephanie become

What probability p could make stephanie become indifferent

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Reference no: EM13748861

Problem 1: As you know, utility functions incorporate a decision maker's attitude towards risk. Let's consider that the subsequent utilities were assessed for Stephanie Parker.

x	u(x)
-$400	0
-$365	10
-$320	20
-$270	30
-$200	40
-$110	50
$0	60
$130	70
$300	80
$600	90
$800	95
$1,100	100

Use these utilities to answer the following questions.

a) What is the monetary certainty equivalent for the following gamble: gain $130 with probability 0.4, lose $320 with probability 0.6.

b) What is the risk premium in a)? Illustrate the concept of a risk premium in addition to calculating its value for a).

c) What probability P could make Stephanie become indifferent between getting $130 for sure or taking the following gamble?

Reference no: EM13748861

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What probability p could make stephanie become indifferent : What probability P could make Stephanie become indifferent between getting $130 for sure or taking the following gamble?

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What probability p could make stephanie become indifferent

Reference no: EM13748861

Reference no: EM13748861

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