ACTSC-372-1055-Test1_exam - _._M,.”.V V :....

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Unformatted text preview: _._M,.”.V V :. u.«.w~.w,_m.,~l : 11381786372 r ’Tes‘t #Mb) — SPRING 2005 Marks: _; 2GP (Salfiimtes) 3 Questions, 4 Pages Aids: Calculator \ . a1 net Worth "of;$100, is facing afisk’that leads to a 91 equal probability. Her utility flmctmn of, Wealth is I, “ @firer, and ,.Nad.ia-if.i:he.insut6f_has' " " " .Ziiti‘l‘it'ylffinétidn 30f :g;;§¥qr,;§§tig;i'wealth~$¥§6‘fififi W. Show all necgqsary caglcplatjons. My WA . M..W-.-.. r “ I0 {11 marks} Note: Next page is blank for additions} workspace You 2116 given a utility function of the form 1 We = ——c"’\“‘: A > O A (a) Show that the above utility function can be used to Characterize a risk averse individual? (b) Determine if this utility function has an increasing, a decreasing, or a constant Arrow-Pratt absolute risk aversion. ' (Q) Would most risk averse individual exhibit an increasing, a. decreasing, or a con— stant Arrow—Pratt absolute risk aversion? Explain. Repeat Part ((2) except now consider Arrow-Pratt relative risk aversion. An individual is exposed to a gamble X that is.1}c_rz_na,lly distributed with mean 1000 and variance 50. Using the above utility "fissiién with A = 3, coniyete the risk premium of the gamble. ‘ ' " A ('0 V\_/‘ , 3m .[Zmarkg] .2, " (a)StététhéCbfifiléfefiessifi®1afigffihgbfizntinuityfixiom‘331d épr-aim :; j "f‘::_}§i:1§é"ofithese axioms._ " ‘ ' ‘ " " g V; (b); Siatethé Von Neumann-Morgen'stém' Expéfited Utility Theofeni‘ ...
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This note was uploaded on 11/18/2010 for the course ACTSC 372 taught by Professor Maryhardy during the Spring '09 term at Waterloo.

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ACTSC-372-1055-Test1_exam - _._M,.”.V V :....

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