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Unformatted text preview: next year, and extending until you retire in 50 years.? If the interest rate is 5% per year, what is the present value of your lifetime income? 6 . The state lottery has accumulated an enormous pot, of $100,000,000. The question then is how many bets to place ($1 tickets to buy). There are 50,000,000 tickets for sale, and one and only one of these tickets will win the $100,000,000 pot. What is the expected value of the lottery ticket winnings for one ticket ? 1. Is this greater than the $1 cost of the ticket? 2. Suppose you have logarithmic utility, i. e., your utility is the log of your wealth after the lottery (your original wealth minus the cost of the tickets you buy plus the winnings). Use the value you computed in the previous problem for your original wealth. If you are an expected utility maximizer, how many tickets should you buy? 3....
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- Spring '08