John has a utility function given by U(M) = M0.5, where M represents an amount of cash prize in a game. If John wins, with the probability of 0.2, he will get $900; otherwise, he gets only $100 when he loses. Alternatively, he can accept a lump-sum amount of cash prize to avoid the game. Calculate the minimum amount that he is willing to accept. How much is the risk premium? Graphically explain your answer.

Posted Date: 12/9/2012 8:36:41 AM | Location : Hong Kong

Ask an Expert

Related Discussions:- Risk and gambling, Assignment Help, Ask Question on Risk and gambling, Get Answer, Expert's Help, Risk and gambling Discussions

Write discussion on Risk and gambling
Your posts are moderated

Write your message here..

Related Questions

Demand curve, how does the charging the monoply a specific tax per unit aff... how does the charging the monoply a specific tax per unit affect the monopoly optmum and 5the welfare of consumer

102, why does the quantity of salt tend to be unresponsive to changes in it... why does the quantity of salt tend to be unresponsive to changes in its price

Qi, During the 1990s, technological advance reduced the cost of computer ch... During the 1990s, technological advance reduced the cost of computer chips. Explain, with the use of supply and demand diagrams, how the following markets are affected in terms of

Shell, pest pest

Dimensions of unemployment, DIMENSIONS OF UNEMPLOYMENT: What is the le... DIMENSIONS OF UNEMPLOYMENT: What is the level of unemployment in the country? According to the 1999-2000 Survey of NSSO, the number of unemployed has increased from 20.13 mill

Aggregate demand for wheat, Aggregate Demand For Wheat The demand for U... Aggregate Demand For Wheat The demand for U.S. wheat is comprised of domestic demand and export demand. The domestic demand for wheat can be given by the equation: -QDD =

Consumer=m, consumer=m with the help of indifference curve analyis consumer=m with the help of indifference curve analyis

Average fixed costs, how do you find the average fixed costs using total fi... how do you find the average fixed costs using total fixed costs and total product?

Kaldor hicks, limitation of kaldor hicks in compensation test and welfare c... limitation of kaldor hicks in compensation test and welfare criteria

Bayesian Nash Equilibrium, Consider 2 firms i=1,2 producing quantities q1 a... Consider 2 firms i=1,2 producing quantities q1 and q2 respectively. Let the market price be given by P=a-b(q1+q2). Firm 1''s Marginal cost c is common knowledge but 2''s cost is no