Essay
Suppose a real estate agent's utility function is given by U = I0.5, where I is income. The agent has uncertain income, such that this year she has a 20% chance of earning $62,500 and an 80% chance of earning $160,000. The income level that would offer the same expected utility is $136,900. What is this agent's risk premium?
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The risk premium is the extra amount of ...View Answer
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