Suppose John now has W = $4, 900 and foresees
1. Suppose John now has W = $4, 900 and foresees that there is 50% chance encoun- tering a big loss of $4,800 in the future. Assuming that Johnâs preference can be described by the utility:?U(W)= ?Wa) What is Johnâs expected future wealth?b) What is Johnâs expected future utility?c) If there is some insurance protection available that will cover Johnâs loss, what is the upper limit of the insurance premium charge so that Johnâs still willing to pay for having the insurance coverage? (Hint: this question is asking about what is certainty equivalent?)
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