Question

The utility from wealth (𝑤) for an individual is given by 𝑢(𝑤) = √𝑤. The individual owns a risky asset that is equally likely to yield either Rs. 400 or Rs. 900. The risk premium of the asset (in Rs.) is

Answer 1

The risk premium of the asset (in Rs.) is: 900 - 400 = Rs. 500.