Suppose Ana's current wealth (W) is $8000 and Ana obeys the principles of expected utility theory. Suppose she is offered a gamble where she can win $5000 with one-half chance but she can lose $5000 with one half-chance. Suppose her utility function is defined as U(W) = W^0.5. (The square root of her wealth). What is the expected monetary payoff of this gamble? What is the expected utility of the gamble? What is Ana's certainty equivalent? What is her risk premium? If Ana were offered this gamble, then on the basis of the utility function defined above, would she accept the gamble or would she prefer on to hang on to her $8000 endowment?

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The Answer of Suppose Ana's current wealth (W) is $8000 and Ana obeys the principles of expected utility theory. Suppose she is offered a gamble where she can win $5000 with one-half chance but she can lose $5000 with one half-chance. Suppose her utility function is defined as U(W) = W^0.5. (The square root of her wealth). What is the expected monetary payoff of this gamble? What is the expected utility of the gamble? What is Ana's certainty equivalent? What is her risk premium? If Ana were offered this gamble, then on the basis of the utility function defined above, would she accept the gamble or would she prefer on to hang on to her $8000 endowment?

Suppose Ana's Current Wealth (W) Is $8000 and Ana Obeys