Completed quickly and followed instructions given. Grammar, spelling, etc. was all good as well. Thank you so much! Will hire in the future.
2) (20 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 $40,000 in a bank account, and she has a house worth $600,000, so her total wealth is initially $640,000. There is a 2% chance that her house is destroyed by a fire.
a) (4 points) Considering the probability that there is a fire, what is Lynn’s Expected Wealth, E(W)?
E(W) = ____________________________
b) (4 points) What is Lynn’s Expected Utility, E(U)?
E(U) = ______________________________
c) (4 points) What is Lynn’s Certainty Equivalent?
CE = ______________________________
d) (4 points) How much would Lynn be willing to pay for fire insurance?
WTP = _______________________________
e) (4 points) What is Lynn’s Risk Premium?
Risk Premium = _____________________________
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