# this is the macroeconomic intermediate question

NursesHomeworkHelp.com prides itself on its team of specialized writers who possess comprehensive knowledge and experience in the field of nursing. These writers are selected through a rigorous vetting process, ensuring that they have the necessary qualifications and expertise in nursing. By engaging writers who understand the intricacies of the nursing profession, NursesHomeworkHelp ensures that students receive accurate and well-researched content that aligns with the unique requirements of the nursing discipline. This specialization sets NursesHomeworkHelp apart as a trusted source of academic support for nursing students.

Risk attitudes

For each of these utility functions, determine whether the agent is risk-averse, risk-neutral, or risk-loving. (Assume that wealth is always positive: w > 0).

• u(w) = 2w3 + w.
• u(w) = 5ln(w) − 4. (ln is the natural logarithm function.)

## 2Now you see it, now you don’t

A student has \$900 in total wealth, consisting of a \$500 laptop as well as \$400 in cash, but

√ there is a 5% chance that her laptop gets stolen during the quarter. Her utility is u(w) = w, where w is her wealth at the end of the quarter.

• Compute the expected value and variance of the student’s end-of-quarter wealth.
• Compute the student’s expected utility, given the risk of having her laptop stolen. Then compute her certainty equivalent.
• A startup called Swipe provides full insurance against the risk of laptop theft. What is the actuarially fair price of this insurance policy? Would the student buy such a policy at the actuarially fair price?
• Explain how Swipe’s insurance contract might create an adverse selection problem. Explain how the contract might create a moral hazard problem.

## 3Portfolios

Explain why each of the following investment strategies reduces, but doesn’t eliminate, the investor’s exposure to risk.

• Investing in several different clean-energy technologies (wind, solar, and hydrogen) instead of just investing in solar.

## 1 Risk attitudes

For each of these utility functions, determine whether the agent is risk-averse, risk-neutral, or risk-loving. (Assume that wealth is always positive: w > 0).
a. u(w) = 2w3 + w.
b. u(w) = 5ln(w) − 4. (ln is the natural logarithm function.)

## 2 Now you see it, now you don’t

A student has \$900 in total wealth, consisting of a \$500 laptop as well as \$400 in cash, but
there is a 5% chance that her laptop gets stolen during the quarter. Her utility is u(w) = w, where w is her wealth at the end of the quarter.
a. Compute the expected value and variance of the student’s end-of-quarter wealth.
b. Compute the student’s expected utility, given the risk of having her laptop stolen. Then compute her certainty equivalent.
c. A startup called Swipe provides full insurance against the risk of laptop theft. What is the actuarially fair price of this insurance policy? Would the student buy such a policy at the actuarially fair price?
d. Explain how Swipe’s insurance contract might create an adverse selection problem. Explain how the contract might create a moral hazard problem.

## 3 Portfolios

Explain why each of the following investment strategies reduces, but doesn’t eliminate, the investor’s exposure to risk.
a. Investing in several different clean-energy technologies (wind, solar, and hydrogen) instead of just investing in solar.

## 1 Risk attitudes

For each of these utility functions, determine whether the agent is risk-averse, risk-neutral, or risk-loving. (Assume that wealth is always positive: w > 0).
a. u(w) = 2w3 + w.
b. u(w) = 5ln(w) − 4. (ln is the natural logarithm function.)

## 2 Now you see it, now you don’t

A student has \$900 in total wealth, consisting of a \$500 laptop as well as \$400 in cash, but
there is a 5% chance that her laptop gets stolen during the quarter. Her utility is u(w) = w, where w is her wealth at the end of the quarter.
a. Compute the expected value and variance of the student’s end-of-quarter wealth.
b. Compute the student’s expected utility, given the risk of having her laptop stolen. Then compute her certainty equivalent.
c. A startup called Swipe provides full insurance against the risk of laptop theft. What is the actuarially fair price of this insurance policy? Would the student buy such a policy at the actuarially fair price?
d. Explain how Swipe’s insurance contract might create an adverse selection problem. Explain how the contract might create a moral hazard problem.

## 3 Portfolios

Explain why each of the following investment strategies reduces, but doesn’t eliminate, the investor’s exposure to risk.
a. Investing in several different clean-energy technologies (wind, solar, and hydrogen) instead of just investing in solar.

## 1 Risk attitudes

For each of these utility functions, determine whether the agent is risk-averse, risk-neutral, or risk-loving. (Assume that wealth is always positive: w > 0).
a. u(w) = 2w3 + w.
b. u(w) = 5ln(w) − 4. (ln is the natural logarithm function.)

## 2 Now you see it, now you don’t

A student has \$900 in total wealth, consisting of a \$500 laptop as well as \$400 in cash, but
there is a 5% chance that her laptop gets stolen during the quarter. Her utility is u(w) = w, where w is her wealth at the end of the quarter.
a. Compute the expected value and variance of the student’s end-of-quarter wealth.
b. Compute the student’s expected utility, given the risk of having her laptop stolen. Then compute her certainty equivalent.
c. A startup called Swipe provides full insurance against the risk of laptop theft. What is the actuarially fair price of this insurance policy? Would the student buy such a policy at the actuarially fair price?
d. Explain how Swipe’s insurance contract might create an adverse selection problem. Explain how the contract might create a moral hazard problem.