You have initial wealth of 500 and are offered the, Business Economics

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You have initial wealth of 500 and are offered the

You have initial wealth of $500 and are offered the following gamble. You flip a coin and if you get heads, you win $1000. If you get tails you lose $500.

a. What is the expected value of the gamble?

b. You have utility in the form of U = M1/2 with initial wealth of $500. What is the expected utility of the gamble? Should you take the gamble?

c. Why would a person with risk neutral preferences always take this gamble?

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