Adam Has Wealth of $40,000 as Long as His Business

question 31

Multiple Choice

Adam has wealth of $40,000 as long as his business does not burn down. However, there is a 50% probability that his business will burn down, causing a loss of $30,000 and leaving him with $10,000 of wealth. Adam's utility function is given by U = W^0.5, where W is wealth. What is Adam's expected utility?

• A) 150
• B) 48
• C) 66
• D) 120

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