In: Economics
Question 6 – 8 refer to prospect H and K below
? = ($100, 0.4; $200, 0.6) ? = ($120, ?; $300, 1 − ?)
6. ?V(?) = ?V(?). What value of p makes this statement true?
7. Carol owns prospect H and is interested in selling it. Her utility of wealth function is given by ?(?) = ?^0.5. What is the lowest price for which Carol would be willing to sell prospect H?
8. True or False: The lowest value of K is greater than the lowest value of H, and the highest value of K is greater than the highest value of H, so everyone – regardless of risk preferences – will prefer K to H.