Best writers. Best papers. Let professionals take care of your academic papers

Order a similar paper and get 15% discount on your first order with us
Use the following coupon "FIRST15"
ORDER NOW

utility function

/in /by

Question

3)  (12 points) Lynn has a utility function U(W) = W1/2, where W is the amount of wealth that she

has.  Lynn has two assets.  She has $90,000 in a bank account, and she has a house worth $270,000, so her total wealth is initially $360,000.  There is a 10% chance that her house is destroyed by a fire.

a) Considering the probability that there is a fire, what is Lynn’s Expected Wealth, E(W)?

b) What is Lynn’s Expected Utility, E(U)?

c) What is Lynn’s Certainty Equivalent)?

d) How much would Lynn be willing to pay for fire insurance?

 
Looking for a Similar Assignment? Order now and Get 10% Discount! Use Coupon Code "Newclient"