Calculate the expected value of janes wealth

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Reference no: EM13854541

Jane obtains utility W^1/2from wealth W. Jane has $100, but there is a 25% chance she will require surgery which costs $64.

(a) Sketch this utility function, indicating the values of Jane’s wealth if she does and if she does not need surgery.

(b) calculate the expected value of Jane's wealth

(d) what is Jane's certainty equivalent?

(e) an insurance company incurs a cost of $4 per additional contract it sells. Can the company profitably insure Jane? Explain

Reference no: EM13854541

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