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Suppose you are facing a lottery that has a payoff of 10b pounds with probability 0.01 and that of 0 with probability 0.99. You are an expected utility maximiser with a utility function, u(x) = −exp(−ax) where x is the payoff in money terms and a > 0 is a

Suppose you are facing a lottery that has a payoff of 10b pounds with probability 0.01 and that of 0 with probability 0.99. You are an expected utility maximiser with a utility function,u(x) = −exp(−ax) where x is the payoff in money terms and a > 0 is a parameter. What is the risk premium for this lottery - describe the risk premium as a function of ‘a’ and ‘b’.

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Suppose you are facing a lottery that has a payoff of 10b pounds with probability 0.01 and that of 0 with probability 0.99. You are an expected utility maximiser with a utility function, u(x) = −exp(−ax) where x is the payoff in money terms and a > 0 is a
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