5. You are a risk-averse decision maker with a utility function U(1) = VI, where I denotes your income. Your income is $100,000 (thus, I=100). However, there is a 0.2 chance that you will have an accident that results in a loss of $10,000. Now, suppose you have the opportunity to purchase an insurance policy that fully insures you against this loss (i.e., that pays you $10,000 in the event that you incur the loss). What is the highest premium that you would be willing to pay for this insurance policy?

Suppose you have an exponential utility function given by U(x) =1- exp(-x/R) where, for you, R = 1000. Further, suppose you have an investment with a 50/50 chance of returning either 0 or 2000 dollars. Note U(0) = 0 and U(2000) = 0.865, so the utility of the lottery is 0.432. What is the certain equivalent of that investment?

Clancy has difficulty finding parking in his neighborhood and, thus, is considering the gamble of illegally parking on the sidewalk because of the opportunity cost of the time he spends searching for parking. On any given day, Clancy knows he may or may not get a ticket, but he also expects that if he were to do it every day, the average amount he would pay for parking tickets should converge to the expected value. If the expected value is positive, then in the long run, it will be optimal for him to park on the sidewalk and occasionally pay the tickets in exchange for the benefits of not searching for parking. Suppose that Clancy knows that the fine for parking this way is $100, and his opportunity cost (OC) of searching for parking is $20 per day. That is, if he parks on the sidewalk and does not get a ticket, he gets a positive payoff worth $20; if he does get a ticket, he ends up with a payoff of

Suppose 1,250 raffle tickets are being sold for $5 each. One ticket will be chosen to receive a cash prize of $2,500, and three tickets will be chosen to recelve cash prizes of $500. Let x be the amount of money won/lost by purchasing one raffle ticket. Find the expected value for . (Round your answer to the nearest penny. Do not include as sign in your answer. Your answer may be positive or negative.)