Categorising the utility functions

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Rachel utility function is given by U= I1/2, where I represents annual income in thousands of dollars.

a. Is Rachel risk loving, risk neutral or risk averse?

b. Suppose Rachel is currently earning income of $23,000 (I =23) and can earn that income next year with certainty.

She is offered a chance to take a new job that offers a 0.5 probability of earning $25000 and a 0.5 probability of earning $16000. Should she take the new job?

Reference no: EM1316385


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