Problems to Lecture 1 Problem 1. The decision maker has the following utility function U(W) = WI-x 1 – 7 Recall that the absolute and the relative…

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Problems to Lecture 1Problem 1. The decision maker has the following utility functionU(W) =WI-x1 – 7Recall that the absolute and the relative risk-aversion coefficients are given byRA(W) =-U"(W)U'(W)RR(W) =-U"(W)U'(W)Wa) Find the restrictions on the parameter y at which the utility function is well-behaved (U’ > 0 and U" < 0).b) Find the expressions for the decision maker’s absolute and relative risk aversioncoefficients. How the absolute and relative risk aversion coefficients dependon wealth?

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