# solution

Suppose my utility function for asset position x is given by u(x)=In x. I now have \$10000 and am considering the following two lotteries: L1: With probability 1, I lose \$2000. L2: With probability 0.8, I gain \$0, and with probability 0.2, I lose \$5000. What is expected utility of Ll and L2? Determine which lottery I prefer based on expected utility criterion. (25 pts.) Select one:

O a. Expected utility of L1=9.072, Expected utility of L2=8.987, Ll is preferred.
O b. Expected utility of L1=8.987, Expected utility of L2=9.072, L2 is preferred.
O c. Expected utility of L1=9.626, Expected utility of L2=9.547, L1 is preferred.
O d. Expected utility of L1=9.547, Expected utility of L2=9.626, L2 is preferred.
O e. Expected utility of L1=9.834, Expected utility of L2=9.852, L2 is preferred.
O f. Expected utility of L1=9.852, Expected utility of L2=9.834, L1 is preferred.

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