Mock Final Exam answers

Ony annie has the option to give jonathan one

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Unformatted text preview: m a final grade of X for sure if Jon is will to put in high effort. What is the minimum value of X for this offer to work? What is Jon's risk premium? (Assuming the utilities from part b.) (7pt) Answer: Low effort: U=50%00.7+50%600.7-20=8.78 Mid effort: U=40%700.7+60%950.7-210=2.37 High effort: U=30%900.7+70%1000.7-225=6.00 Because Low > High > Mid, therefore Jon prefers low effort. Thus he is still a slacker. Substitute the maximum utility (low effort) into the original utility function, with the effort cost of high effort: U=G0.7-2C= G0.7-2X25=8.78 Then solve for G. G=336.91 Risk Premium=EV of Low Effort-G=30-336.91=-306.91%...
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